Calculation of MRR and ARR

Understand how Fincome calculates MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) to accurately reflect the reality of your recurring revenues. Discover the rules applied

1. Why does Fincome calculate MRR and ARR?

Fincome's mission is to centralize billing data (Stripe Billing, Chargebee, Hyperline, Sellsy, Pennylane, incoming APIs) and standardize its interpretation in order to provide in real time the key SaaS growth metrics: MRR, ARR, churn rate, NRR, projections, forecast scenarios, etc. A consistent calculation of MRR/ARR regardless of your PSP (payment service provider) is essential to ensure reporting coherence. Indeed, without uniform rules:

• Financial reports become difficult to reconcile with operational reports

• The breakdown of movements (New MRR, Expansion, Churn) can be distorted

• Investors struggle to compare your performance with their internal benchmarks

2. Definition and usefulness of MRR

MRR (Monthly Recurring Revenue) represents the monthly recurring revenue generated by your subscriptions. It is, in a way, the "monthly snapshot" of the company's recurring revenue. Concretely, the MRR for a given month is the sum of all subscription amounts apportioned to one month of service (amounts excluding tax prorated over the month concerned).

MRR is calculated from invoice lines and the period of each subscription. The formula used is:

$$MRR = \sum (\text{Monthly value of each active subscription})$$

that is

$$\sum \left( \frac{\text{Subscription amount excluding tax}}{\text{Subscription duration in months}} \right)$$

MRR is a central metric in SaaS, which is used notably to:

• Track the company's growth trajectory, month after month

• Analyze the quality of the customer base by breaking down MRR evolution: new sales (New MRR), expansions (upsell), contractions (downsells) and churn, as well as the impact of foreign exchange effects (FX)

MRR is non-prorated: this means the full value of a subscription is recognized as soon as the subscription is active, even if it starts or ends in the middle of the month.

Example: A customer subscribes for €100 per month on March 15. The MRR for March will include the subscription in full, even though the subscription only begins halfway through the month.

3. MRR calculation methodology in Fincome

Fincome calculates the MRR for each month following a rigorous process aligned with SaaS best practices. The calculation steps are as follows:

1. Identification of the service period: each invoice line is processed according to its service start and end dates (start_date and end_date). Example: an annual invoice from January 1 to December 31 covers 12 months of service.

2. Monthly allocation: the invoice amount is evenly distributed across each month of service covered. This amounts to dividing the amount excluding tax by the number of months in the covered period. Example: €1,200 excl. tax over 12 months yields €100 MRR per month.

3. Currency conversion (source: Open Exchange Rate): if your invoices are issued in another currency, Fincome converts the amounts into the reporting currency using the exchange rate at the start of the period (ECB rate at D1). Example: $100 invoiced on May 15, with an EUR/USD rate of 1.10, is converted into ~€90.91 of MRR.

4. Exclusion of non-recurring revenue: non-recurring billing items are excluded from MRR. For example, one-off fees (setup fees, training, hardware, exceptional credits) are excluded and do not generate MRR. Example: a training billed at €2,000 will be accounted as €0 in MRR, since it is a one-shot (non-recurring) revenue.

5. Churn recognition: Fincome applies a configurable churn recognition rule to determine when MRR is reduced in case of subscription cancellation. Depending on the chosen rule, the MRR loss can be recorded at the cancellation request date, at the effective cancellation date, or at the end of the current period. Example: for a subscription canceled on May 15 with an expiry on June 30, the MRR loss will be recorded either on May 15, on May 31, or on June 30, depending on the defined churn rule.

To learn more about churn recognition, you can read this article in the Help Center.

4. Cases of atypical periods

In some cases, the billing duration does not correspond to the standards (monthly, quarterly, semi-annual or annual). Fincome then applies a proration rule to determine the monthly MRR:

• If the number of days in the period is within ± 4 days of one of the standards [30, 60, 90, 180, 365], then the duration is rounded to the integer number of corresponding months (1, 2, 3, 6 or 12 months).

  • Example: a period of 89 days is rounded to 3 months.

• In other cases, Fincome uses the following formula:

MRR=Amount excl. tax × 30.437 / Number of days in the period

MRR = Amount excluding tax × 30,437 / Number of days in the period

(30.437 corresponds to the average duration of a calendar month.)

This calculation is the default mode of Fincome.

Alternative option: frequency-based plan calculation

If the default proration does not meet your needs, you can enable an alternative mode :

• This mode relies on the frequency specified in your plans (monthly, quarterly, annual, etc.).

• It is more accurate provided your plans are well configured.

5. From MRR to ARR

ARR (Annual Recurring Revenue) means Annual Recurring Revenue. It is simply the MRR expressed on an annual basis. The formula is: ARR = MRR × 12. This metric aggregates your level of monthly recurring revenue into an annualized projection, useful for communicating the size of your annual recurring revenues. For example, a total MRR of €85,000 per month corresponds to an ARR of approximately €1,020,000 (85,000 × 12).

By mastering these different metrics, you will have a complete view to steer the growth of your SaaS. Fincome helps you automate these calculations and visualize them clearly, to support your financial analyses, forecasts and strategic decisions.