Project your monthly and annual recurring revenue, and see the drag from churn.
MRR (Monthly Recurring Revenue) = customers × average revenue per customer. ARR = MRR × 12. Churn is the share of that recurring revenue you lose each month when customers cancel — even a few percent compounds hard over a year, which is why retention matters as much as acquisition.
MRR is only useful if it contains recurring revenue and nothing else. The line is simple: if it will not predictably arrive again next month, it does not belong in the number.
| Include | Exclude |
|---|---|
| Subscription fees on active plans | One-time setup and onboarding fees |
| Annual contracts, divided by 12 | Hardware, resold licences, expenses passed through |
| Recurring seat and add-on charges | Consulting and custom development |
| Committed usage tied to a contract | One-off overages that vary wildly month to month |
Annual plans are where this goes wrong most often. Booking twelve months of cash as a single month of MRR makes that month look excellent and the following eleven look like a collapse.
Monthly churn compounds, so small differences separate quickly. Starting from a fixed base and adding no new customers:
| Monthly churn | Revenue left after 12 months | Months until half is gone |
|---|---|---|
| 1% | 89% | 69 |
| 3% | 69% | 23 |
| 5% | 54% | 14 |
| 7% | 42% | 10 |
At 7% monthly churn, half the revenue base is gone inside a year. Acquisition has to run at that pace before a single dollar of growth appears, which is why retention work usually beats another marketing channel.
The calculator above models gross revenue churn — what leaves. Existing customers also expand, through upgrades, extra seats and higher usage tiers. Net revenue retention nets the two: start-of-period revenue plus expansion, minus contraction and churn, divided by start-of-period revenue. Above 100% means the existing base grows on its own even with no new customers, which changes what the same churn rate implies.
As a snapshot, yes, and that is how most SaaS companies report it. It is a run rate, not a forecast: it describes what the current month annualises to, assuming nothing changes. It is not the revenue you will actually recognise over the next twelve months, and treating it that way overstates the number whenever churn is meaningful.
It depends heavily on who you sell to. Self-serve products aimed at individuals and small businesses churn faster than annual enterprise contracts, and comparing across those segments produces misleading targets. Your own trend over the last six months is a more useful benchmark than any published figure.
Related: LTV / CAC Calculator · Freelance Hourly Rate