Calculation of MRR and ARR

Understand how Fincome calculates MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) to faithfully 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 key SaaS growth metrics in real time: MRR, ARR, churn rate, NRR, projections, forecast scenarios, etc. A homogeneous calculation of MRR/ARR regardless of your PSP (payment service provider) is essential to ensure reporting consistency. Indeed, without uniform rules:

• Financial reports become difficult to reconcile with operational reports

• The allocation 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 taxes prorated over the relevant month).

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

$$MRR = \sum (\text{Valeur mensuelle de chaque abonnement actif})$$

that is

$$\sum \left( \frac{\text{Montant HT de l'abonnement}}{\text{Durée de l'abonnement en mois}} \right)$$

MRR is a central SaaS metric, 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 currency effects (FX)

MRR is not prorated: this means that the full value of a subscription is recorded as soon as the subscription is active, even if it starts or ends mid-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 begins halfway through the month.

3. Fincome's methodology for calculating MRR

Fincome calculates each month's MRR 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 taxes 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 beginning of the period (ECB rate at day 1). 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-time fees (setup fees, training, hardware, exceptional credits) are excluded and do not generate MRR. Example: a training billed €2,000 will be accounted for as €0 in MRR, because it is one-shot (non-recurring) revenue.

5. Churn recognition: Fincome applies a configurable churn recognition rule to determine when MRR is reduced in the event 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 expiration 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 match 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 corresponding whole number of 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 periodMRR

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

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

This calculation is the default mode of Fincome.

Alternative option: calculation based on plan frequency

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 revenue. 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, in order to support your financial analyses, forecasts, and strategic decisions.