Monthly / annual recurring revenue growth
What is it about?
To measure recurring revenue growth in a SaaS (software as a service) company, you can calculate the month-over-month (MoM) or year-over-year (YoY) change in your recurring revenue.
MRR (monthly recurring revenue) and ARR (annual recurring revenue) are both measures of recurring revenue, but MRR is measured on a monthly basis and ARR is measured on an annual basis. To calculate MRR, you can simply sum up all of your monthly recurring revenue streams, and to calculate ARR, you can multiply your MRR by 12.
How to calculate?
To calculate MoM recurring revenue growth, you can use the following formula:
((Current month's recurring revenue - Previous month's recurring revenue) / Previous month's recurring revenue) x 100
This will give you the percentage change in your recurring revenue from one month to the next. For example, if your recurring revenue for the current month is $10,000 and was $9,000 the previous month, your MoM growth would be:
(($10,000 - $9,000) / $9,000) x 100 = 11.1%
To calculate YoY recurring revenue growth, you can use a similar formula:
((Current year's recurring revenue - Previous year's recurring revenue) / Previous year's recurring revenue) x 100
This will give you the percentage change in your recurring revenue from one year to the next. For example, if your recurring revenue for the current year is $120,000 and was $100,000 the previous year, your YoY growth would be:
(($120,000 - $100,000) / $100,000) x 100 = 20%
MRR Growth vs ARR Growth: Which One to Track
Both measure recurring revenue growth, but they serve different conversations.
| MRR growth | ARR growth | |
|---|---|---|
| Cadence | Month over month | Year over year |
| What it reveals | Momentum, reacting to new sales, upgrades, and churn | Scale, smoothed of monthly noise |
| Who consumes it | Operators running the business | The board and investors |
MRR growth is the short feedback loop: it moves with what happened this month. ARR growth smooths that noise and is the number used for planning and valuation. One more distinction for the related queries: ARR growth counts all recurring revenue, including new customers, while net revenue retention measures growth from your existing base only. See churn and net retention for that view, and compound monthly growth rate for the compounding version of MoM growth.
What Is a Good Recurring Revenue Growth Rate?
There is a defensible benchmark for this one. SaaS Capital's 13th annual survey of more than 1,500 private B2B SaaS companies put the median growth rate at 30% for 2023, down from 35% the year before. Bootstrapped companies reported a 25% median, equity-backed ones 30%.
The catch is that "good" is size-relative. SaaS Capital notes that 30% growth is below median for a $4M ARR company but above median at $20M ARR. And retention feeds growth: moving net revenue retention from the 90 to 100% band up into 100 to 110% lifts the growth rate by roughly 10 points. For the stage-by-stage view, see partnerships in growth stages.
Where Growth Calculations Go Wrong
Three mistakes distort the number:
- ARR = MRR x 12 only holds for pure monthly subscriptions. With annual or multi-year contracts, annualize the contract value instead. Zuora's example: a $4,000 four-year contract is $1,000 of ARR, not $4,000.
- One-time fees do not belong in MRR or ARR. Both metrics count only predictable, repeatable revenue. Setup fees, services, and one-off charges sit outside them.
- Quoting gross new MRR while ignoring churn overstates health. The honest figure is net new MRR: new plus expansion, minus churn and contraction. When expansion outruns churn, you get negative churn. If you sell through partners, split out partner-sourced revenue so a strong direct quarter does not mask a weak partner one, or the reverse.
Frequently Asked Questions
Is ARR just MRR x 12?
For pure monthly subscriptions, yes. Stripe's documentation states that ARR is MRR multiplied by 12. The exception is contracts: with annual or multi-year deals, annualize the contract value instead, so a $4,000 four-year contract counts as $1,000 of ARR, not $4,000.
What is the 3 3 2 2 2 rule of SaaS?
It is the T2D3 growth path, coined by Neeraj Agrawal of Battery Ventures in 2015. After reaching roughly $2M ARR, a company triples ARR twice, then doubles it three years running. That trajectory is the one behind many well-known SaaS IPOs, and it sets a deliberately aggressive bar.
Related
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