MRR & ARR Forecasting Calculator

How to Accurately Forecast Your Recurring Revenue (MRR & ARR)

Growing a subscription business is a game of foresight. You need to know where your company is headed, not just where it is today. That’s where an MRR & ARR forecasting calculator comes in. It’s a fundamental tool that helps you project future revenue, identify potential risks, and plan for sustainable growth.

So, what exactly are we talking about when we say forecasting MRR and ARR? It’s about more than just looking at past performance. It’s about building a model that uses your current metrics—like your monthly recurring revenue (MRR) and annual recurring revenue (ARR)—to predict what your revenue will look like in the coming months and years. This isn’t a crystal ball; it’s a strategic planning tool built on your business’s core data.

Understanding the Building Blocks: The Core Components of Your Forecast

Before you can forecast, you need a solid grasp of the key metrics that drive your recurring revenue. These are the ingredients that go into your forecasting model.

• Starting MRR: This is your baseline. It’s the total recurring revenue you have at the beginning of the period you’re forecasting. Think of it as your current revenue snapshot.
• New MRR: This is the revenue you gain from new customers. It’s a direct result of your sales and marketing efforts.
• Expansion MRR: This is revenue from your existing customer base. It comes from upsells (customers upgrading their plan), cross-sells (customers buying an add-on product), or an increase in usage (like in a usage-based pricing model). A high expansion MRR is a sign of a healthy, valuable product.
• Churn MRR: This is the revenue you lose when a customer cancels their subscription. High churn is a major red flag and can kill even a fast-growing business.
• Contraction MRR: This is the revenue you lose from existing customers who downgrade their plan. It can be a result of dissatisfaction or a customer’s changing needs.

The difference between all of these metrics is your Net New MRR. This is the single most important number to track, as it represents your month-over-month growth.

Net New MRR = New MRR + Expansion MRR - Churn MRR - Contraction MRR

This simple equation is the engine of your forecast.

Why Forecasting MRR & ARR is Crucial for Your Business

Beyond just having a number for the future, a solid revenue forecast offers tangible benefits.

1. Informed Decision-Making: Should you hire another salesperson? Is it time to invest more in marketing? Your forecast provides the data to back up these decisions. A positive MRR growth forecast can justify a new hire, while a projected decline might signal a need to focus on customer retention strategies.
2. Resource Allocation: Forecasting helps you allocate resources effectively. If you project rapid growth, you know you’ll need to invest more in customer support and infrastructure to avoid a negative customer experience.
3. Investor and Stakeholder Confidence: Investors, board members, and even your own team need to see a clear path forward. A detailed revenue forecast demonstrates that you have a firm grasp of your business model and a clear plan for the future. It’s a key part of SaaS financial modeling and is a must-have for fundraising.
4. Strategic Planning: The act of forecasting forces you to think critically about your business. You must ask questions like:
   • What’s a realistic customer acquisition cost (CAC)?
   • What’s our customer lifetime value (CLV)?
   • How will a new product launch impact our Expansion MRR?

Answering these questions helps you build a more robust and resilient business plan.

How to Build Your Forecast Model

You don’t need a complex software suite to start. A simple spreadsheet is a great place to begin. Here’s a step-by-step approach:

1. Gather Your Historical Data: Look at your past 6-12 months of data for each of the core metrics: starting MRR, new MRR, expansion MRR, churn MRR, and contraction MRR. This historical performance provides a foundation for your assumptions.
2. Create Your Assumptions: This is the most critical part. Based on your historical data and your future plans (e.g., a new marketing campaign, a pricing change), make realistic assumptions for each metric.
   • New MRR: Base this on your sales pipeline and marketing efforts. If you’re planning to double your marketing spend, you might assume a higher new MRR rate.
   • Churn & Contraction MRR: Assume a stable rate unless you have a specific plan to reduce churn, such as implementing a new customer success program.
   • Expansion MRR: Consider how many customers are likely to upgrade and what the average value of an upgrade is.
3. Project Your Revenue: Plug your starting MRR and your monthly assumptions into the formula.
   • Month 1 Forecasted MRR = Starting MRR + Net New MRR
   • Month 2 Forecasted MRR = Month 1 Forecasted MRR + Net New MRR
   • …and so on for the number of months you’re forecasting.
4. Calculate ARR: For any given month, simply multiply the forecasted MRR by 12 to get your Forecasted ARR.

The Importance of Scenarios

A single forecast can be misleading. A more robust approach is to create multiple scenarios:

• Conservative Case: Assume higher churn and lower new customer acquisition. This helps you understand your worst-case scenario.
• Base Case: Your most likely projection, based on realistic assumptions.
• Aggressive Case: Assume everything goes right. This can be useful for setting ambitious goals and understanding your full potential.

By modeling these different scenarios, you can better prepare for the future, whether it’s good or bad.

Frequently Asked Questions (FAQs)

Q1: What’s the difference between MRR and ARR?
MRR (Monthly Recurring Revenue) is the total predictable revenue a business can expect to receive on a monthly basis. ARR (Annual Recurring Revenue) is the yearly equivalent, calculated by multiplying MRR by 12. ARR is generally used by businesses with annual contracts.

Q2: How often should I forecast my MRR and ARR?
Forecasting should be an ongoing process. You should review and update your forecast at least once a quarter, or more frequently if you experience significant changes in your business, such as a new product launch, a change in pricing, or a shift in market conditions.

Q3: Is forecasting just for finance professionals?
No, a basic understanding of forecasting is essential for anyone involved in a SaaS business. Sales, marketing, and product teams should all be aware of their impact on key metrics like New MRR, Churn, and Expansion MRR.

Q4: Can I forecast with high customer churn?
Yes, you can, but it’s a red flag. A high churn rate will likely result in a flat or even negative Net New MRR, indicating that you’re losing customers faster than you’re acquiring them. The forecast will highlight this problem, pushing you to focus on retention.

Q5: How does a pricing change affect my forecast?
A pricing change will directly impact your New MRR (for new customers) and potentially your Expansion MRR (if it encourages existing customers to upgrade). It could also impact your churn rate. It’s crucial to model these changes carefully to see their true effect on your revenue.

Q6: What is Net Dollar Retention?
Net Dollar Retention (NDR) is a key SaaS metric that measures how much revenue you retain from an existing customer cohort over a period. It accounts for both churn (revenue loss) and expansion revenue (revenue gain), providing a holistic view of your customer value over time.