Quick answer
A practical guide to calculating SaaS revenue from starting MRR, new MRR, expansion, contraction, churn and ARR.
Core formulas
Starting MRR = current customers * average revenue per account
Use the active paying customer base at the start of the period.Ending MRR = starting MRR + new MRR + expansion MRR - contraction MRR - churned MRR
This bridge shows which movement changed revenue.ARR = ending MRR * 12
Annualize only normalized recurring revenue.Worked example
Monthly SaaS revenue bridge
- Starting MRR is $20,000.
- New MRR is $2,400 and expansion MRR is $600.
- Contraction MRR is $300 and churned MRR is $900.
Step 1: normalize recurring revenue
Before calculating SaaS revenue, normalize every recurring plan to a monthly amount. A $1,200 annual plan contributes $100 MRR. A $99 monthly plan contributes $99 MRR. One-time setup fees stay outside the recurring revenue base.
This step matters because a SaaS business can collect cash annually while still needing a monthly view of retention, expansion and churn.
Step 2: separate revenue movement
A simple beginning-to-ending comparison tells you whether MRR changed. A movement bridge tells you why it changed. Separate new MRR, expansion MRR, contraction MRR and churned MRR so you can see whether growth is coming from acquisition, account expansion or better retention.
- New MRR: recurring revenue from new customers.
- Expansion MRR: upgrades, seats, add-ons or usage increases from existing customers.
- Contraction MRR: downgrades or usage decreases from retained customers.
- Churned MRR: recurring revenue lost from canceled accounts.
Step 3: compare growth with quality
Revenue growth is not automatically healthy. If net new MRR is positive but churned MRR is large, the business may be replacing lost revenue too aggressively. If new MRR requires heavy acquisition spend, check CAC payback and LTV before scaling.
Use the calculators
FAQ
Should services revenue count as SaaS revenue?
It can count as total company revenue, but keep it separate from recurring SaaS revenue when calculating MRR and ARR.
What is the difference between revenue churn and customer churn?
Customer churn counts lost accounts. Revenue churn counts lost recurring revenue. Revenue churn is often more useful when customers pay different amounts.
Can expansion offset churn?
Yes. Expansion MRR can offset churned MRR, but it should still be tracked separately so retention issues are not hidden.