Annual Recurring Revenue Formula from Monthly Recurring Revenue
Learn how ending monthly recurring revenue is converted into annual recurring revenue and how each revenue movement affects the result.
This calculator estimates annual recurring revenue by first reconciling monthly recurring revenue at the end of a month. It helps subscription businesses separate new sales, customer expansion, downgrades, and cancellations before annualizing the resulting MRR run rate.
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Annual Recurring Revenue
Where:
Start with recurring revenue at the beginning of the month, add new and expansion revenue, subtract downgrades and cancellations, then multiply the ending monthly amount by 12.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| beginningMrr - Beginning monthly recurring revenue | Recurring subscription revenue active at the start of the month. | currency |
| newMrr - New monthly recurring revenue | Recurring revenue added from customers acquired during the month. | currency |
| expansionMrr - Expansion monthly recurring revenue | Additional recurring revenue from existing customers, such as upgrades, seats, or add-ons. | currency |
| contractionMrr - Contraction monthly recurring revenue | Recurring revenue lost when existing customers remain but reduce their subscription value. | currency |
| churnedMrr - Churned monthly recurring revenue | Recurring revenue lost because customers cancelled completely. | currency |
| endingMrr - Ending monthly recurring revenue | Recurring revenue after all monthly movements have been applied. | currency |
| annualRecurringRevenue - Annual recurring revenue | The annualized run rate based on ending MRR. | currency |
Step-by-Step Calculation
Record beginning MRR
Use the recurring subscription revenue in place at the beginning of the reporting month.
beginningMrr
Add revenue gains
New customer revenue and expansion from existing customers both increase MRR.
newMrr + expansionMrr
Calculate revenue losses
Downgrades and cancellations both reduce MRR, but they are tracked separately.
contractionMrr + churnedMrr
Calculate ending MRR
This reconciles the beginning MRR balance to the month-end MRR balance.
beginningMrr + newMrr + expansionMrr - contractionMrr - churnedMrr
Annualize ending MRR
Multiply month-end MRR by 12 to estimate the current annual recurring revenue run rate.
endingMrr * 12
Calculate net revenue retention
This shows how revenue from the starting customer base changed, excluding revenue from newly acquired customers.
((beginningMrr + expansionMrr - contractionMrr - churnedMrr) / beginningMrr) * 100
Example: Annualizing month-end subscription revenue
Total MRR added
$1,500 + $500
$2,000 per month
Total MRR lost
$250 + $750
$1,000 per month
Ending MRR
$10,000 + $2,000 - $1,000
$11,000 per month
Annual recurring revenue
$11,000 × 12
$132,000 per year
Net MRR change
$11,000 - $10,000
+$1,000 per month
Net revenue retention
(($10,000 + $500 - $250 - $750) / $10,000) × 100
95.0%
Final Result
Ending MRR is $11,000 per month, which annualizes to $132,000 in ARR. Net revenue retention is 95.0%.
Assumptions
- ✓ARR is calculated as ending MRR multiplied by 12.
- ✓All input amounts are recurring subscription revenue in the same currency and reporting period.
- ✓New MRR represents revenue from new customers and is excluded from net revenue retention.
- ✓Revenue movements entered for the month are complete and are not counted in more than one category.
Limitations
- !Annualized recurring revenue is a run-rate measure, not a forecast of revenue actually earned over the next 12 months.
- !The calculation does not account for future renewals, pricing changes, seasonality, collections, refunds, or future churn.
- !ARR and MRR may differ from recognized revenue because revenue recognition depends on contracts, performance obligations, and accounting policies.
- !Net revenue retention is not meaningful when beginning MRR is zero because its denominator is zero.
Common Mistakes to Avoid
Including one-time setup fees, professional services, or non-recurring usage charges in MRR.
Counting an upgrade from an existing customer as new MRR instead of expansion MRR.
Classifying a full cancellation as contraction rather than churned MRR.
Using billed annual contract value as monthly recurring revenue without normalizing it to a monthly amount.
Adding new MRR to net revenue retention, which is intended to measure the starting customer base only.
Related Formulas
Frequently Asked Questions
How do you calculate ARR from MRR?
For this calculator, ARR equals ending MRR multiplied by 12. Ending MRR reflects beginning MRR plus new and expansion MRR, less contraction and churned MRR.
What is the formula for ending MRR?
Ending MRR equals beginning MRR plus new MRR plus expansion MRR minus contraction MRR minus churned MRR.
Why is new MRR excluded from net revenue retention?
Net revenue retention measures changes in revenue from customers present at the start of the month. New MRR comes from newly acquired customers, so it is excluded.
Can net revenue retention exceed 100%?
Yes. It exceeds 100% when expansion revenue from existing customers is greater than their combined contraction and churned revenue.
Is ARR the same as recognized revenue?
No. ARR is an annualized recurring-revenue run rate, while recognized revenue depends on accounting treatment, delivery timing, and contract terms.
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