Accounting Annual Recurring Revenue Formula
Learn how ending monthly recurring revenue, annual recurring revenue, and net revenue retention are calculated from monthly revenue movements.
This calculator creates a monthly recurring revenue roll-forward. It starts with opening MRR, accounts for customer additions and changes during the month, then annualizes ending MRR to estimate ARR. Separating new revenue from existing-customer movements also makes the retention result easier to interpret.
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Annual Recurring Revenue
Where:
Calculate ending MRR by adding new and expansion revenue and subtracting contraction and churn. Then multiply ending MRR by 12 to annualize it.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| startingMrr - Starting monthly recurring revenue | Recurring revenue at the start of the reporting month. | currency |
| newMrr - New monthly recurring revenue | Recurring MRR from customers acquired during the month. | currency |
| expansionMrr - Expansion monthly recurring revenue | Additional MRR from existing customers through upgrades, added seats, or added recurring services. | currency |
| contractionMrr - Contraction monthly recurring revenue | MRR lost when existing customers remain but reduce recurring spend. | currency |
| churnedMrr - Churned monthly recurring revenue | MRR lost when customers fully cancel. | currency |
| endingMrr - Ending monthly recurring revenue | Recurring revenue remaining at the end of the month after all movements. | currency |
| annualRecurringRevenue - Annual recurring revenue | Ending MRR annualized over 12 months. | currency |
| netRevenueRetention - Net revenue retention | Retention of the opening customer revenue base, excluding new customer MRR. | percent |
Step-by-Step Calculation
Record opening MRR
Use the recurring revenue balance at the beginning of the month. Exclude one-time charges.
startingMrr
Calculate net MRR change
This measures the total monthly movement across new sales, expansion, downgrades, and cancellations.
newMrr + expansionMrr - contractionMrr - churnedMrr
Calculate ending MRR
Add positive MRR movements to opening MRR and subtract losses.
startingMrr + newMrr + expansionMrr - contractionMrr - churnedMrr
Annualize ending MRR
Multiply the end-of-month recurring revenue run rate by 12 to estimate ARR.
endingMrr * 12
Calculate net revenue retention
This measures change in the starting revenue base. New MRR is deliberately excluded.
((startingMrr + expansionMrr - contractionMrr - churnedMrr) / startingMrr) * 100
Example: MRR roll-forward to ARR
Calculate positive MRR additions
$1,500 + $500
$2,000/month
Calculate MRR losses
$200 + $300
$500/month
Calculate net MRR change
$2,000 − $500
+$1,500/month
Calculate ending MRR
$10,000 + $1,500
$11,500/month
Calculate ARR
$11,500 × 12
$138,000/year
Calculate net revenue retention
(($10,000 + $500 − $200 − $300) / $10,000) × 100
100.0%
Final Result
Ending MRR is $11,500 per month, estimated ARR is $138,000 per year, and net revenue retention is 100.0%.
Assumptions
- ✓ARR is calculated as ending MRR multiplied by 12.
- ✓Only predictable recurring subscription or contract revenue is included.
- ✓All revenue movements relate to the same reporting month and are measured consistently.
- ✓New MRR is excluded from net revenue retention.
- ✓Entered values are treated as revenue run-rate movements rather than recognized revenue amounts.
Limitations
- !Annualizing one month of MRR may not reflect seasonal demand, expected cancellations, or future price changes.
- !Revenue recognition, billing timing, refunds, credits, deferred revenue, and contract terms can produce reported figures different from this estimate.
- !Foreign-exchange movements can affect consolidated recurring revenue when customers pay in multiple currencies.
- !Retention can be distorted by unusual one-off upgrades, downgrades, or account changes in a short period.
Common Mistakes to Avoid
Including implementation fees, usage overages that are not contracted recurring charges, or other one-time income in MRR.
Counting a full customer cancellation as contraction instead of churn.
Including new customer MRR in the net revenue retention calculation.
Using invoiced revenue rather than a consistent recurring revenue run rate.
Mixing movements from different months in one roll-forward.
Annualizing starting MRR instead of ending MRR when the calculator is designed to use the end-of-month run rate.
Related Formulas
Frequently Asked Questions
What is the formula for ARR from monthly recurring revenue?
For this calculator, ARR equals ending MRR multiplied by 12. Ending MRR equals starting MRR plus new and expansion MRR, minus contraction and churned MRR.
How do you calculate ending MRR?
Ending MRR = starting MRR + new MRR + expansion MRR − contraction MRR − churned MRR.
Why is new MRR excluded from net revenue retention?
Net revenue retention is intended to show what happened to the revenue from customers already present at the start of the period. New customer revenue is measured separately.
Can net revenue retention be above 100%?
Yes. It exceeds 100% when expansion from the opening customer base is greater than its combined contraction and churn.
Can ARR fall while net revenue retention is above 100%?
Yes. Existing customers can expand enough for retention above 100%, while total ARR still falls if new MRR is low and other movements or timing reduce ending MRR in a broader reporting view.
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