Most of what we buy these days seems to be a subscription—TV, music, even our software and food. It makes sense why lots of businesses prefer this model. Recurring revenue is steadier than waiting for customers to decide when to come back and shop.
If you run (or work at) a subscription-based business, tracking the right numbers isn’t just “good housekeeping.” It’s the best way to know how things are actually going.
Today, let’s talk about three key metrics: ARR, MRR, and churn. Getting a sense of these is like having a dashboard in your car—it helps you catch problems and see progress, even if things feel chaotic day-to-day.
Annual Recurring Revenue (ARR): What It Really Tells You
Let’s start with ARR, short for Annual Recurring Revenue. It’s just the total predictable revenue that repeats every year.
Here’s how companies use it. Suppose you’ve got 200 customers paying you $500 each year. Your ARR is $100,000. If some pay monthly, you take their total payments for a year and include them too.
ARR is simple, but powerful. It gives CEOs and managers a fast way to answer: “How much money will this business bring in next year if nothing changes?” It works best if your customers are on yearly or multi-year plans, but monthly subscriptions can be converted into annual numbers too.
ARR helps with forecasting. If your ARR is slowly creeping up, you’re landing new subscribers and maybe hanging on to old ones. But if it’s dropping, that’s a red flag. Maybe customers are leaving, or you’re not adding new ones fast enough.
SaaS (Software-as-a-Service) companies use ARR to compare their performance year over year. Streaming companies do it too—it’s helpful wherever revenue repeats.
Monthly Recurring Revenue (MRR): Why Track Every Month?
If ARR is the big yearly picture, Monthly Recurring Revenue (MRR) is the close-up. MRR is the amount of new, regular revenue you can count on each month.
To figure out MRR, just add up all the money you get from subscriptions that month. So, 300 customers paying $30 a month? That’s $9,000 MRR.
MRR lets you track trends faster than ARR. If you add 20 subscribers this month, MRR will show a jump next month. If you lose customers in August, you’ll see the hit in September’s MRR.
Businesses use MRR to see if their marketing is working, or if a bunch of customers left after a price change. ARR gives a slow, big-picture trend; MRR gives you real-time feedback.
Lots of managers compare the two. Where ARR is good for spotting annual change, MRR can alert you to short-term wins or warning signs.
The Flip Side: Understanding Churn Rate
Churn is just another way to say “people leaving.” Churn rate tells you what percent of your customers (or revenue) cancels during a certain period. It stings, but you want to know about it.
There are a couple ways to calculate churn. Most businesses either use customer churn (number of customers lost divided by total at the start) or revenue churn (dollars lost divided by total dollars at the start).
If you started the month with 200 customers, and 10 canceled, your churn rate is 5%.
High churn is rough. It usually means your product isn’t meeting people’s needs, or you’ve got fierce competition. Even if you bring in lots of new signups, high churn can wipe out your growth.
Want healthier numbers? Focus on keeping your churn rate as low as possible. For subscription businesses, that can mean listening to complaints, solving problems quickly, and making sure your service keeps feeling useful.
Why ARR, MRR, and Churn Matter (More Than You Think)
A lot of business owners focus on revenue, but ARR, MRR, and churn tell deeper stories. These metrics show what’s predictable, what’s changing, and how steady your customer base really is.
Tracking ARR and MRR together helps you spot long-term patterns and quick changes. When your ARR climbs, it means you’re building a more stable company. When MRR tanks, you know to investigate fast.
Churn, on the other hand, warns you when customers don’t stick around. There’s plenty of evidence that fixing churn does more for your business in the long run than almost anything else.
Owners and managers use these numbers to decide how much to spend on marketing, when to hire, or if it’s time to change something important about the product.
If you don’t track them, you’re flying blind. If you check these numbers each month, you’ll see problems early and spot opportunities you might have missed.
Tracking Subscription Metrics: Which Tools Actually Work?
You don’t need fancy tech to calculate these numbers, especially if you’re small and just starting out. A basic spreadsheet can do the trick.
But as you grow, it helps to have actual tools or software that organize all your numbers for you. A few common choices are ChartMogul, Baremetrics, ProfitWell, and SaaSOptics. Some accounting programs now offer built-in dashboards specifically for ARR, MRR, and churn tracking.
The best tools update in real-time, sync with your billing system, and let you break down numbers by customer segments. Some show you when a customer is about to churn, or send you alerts when MRR drops unexpectedly.
When you’re picking a tool, check if it works well with your billing, payment processor, and CRM data. That saves a lot of headaches later on.
And for companies that want everything in one place, some platforms—like this one—also help with sales tracking, inventory, and reporting. That’s useful when you’re juggling multiple revenue streams.
Getting Better Numbers: What Works with ARR, MRR, and Churn
So, how can you boost your ARR and MRR? One way is just adding new customers. But you can also offer upgrades, cross-sell new features, or launch better subscription tiers.
Another way is price optimization. If you can deliver more value, customers might pay more for a bigger plan or a priority support package.
Churn is the one everyone dreads. But businesses with low churn almost always have strong onboarding, fast customer support, and regular check-ins. Some ask for feedback after customers sign up—or even after they cancel.
You might send “win-back” emails to old customers. Or roll out loyalty perks for those who stick around a full year. Even simple things—like sending a thank-you note on renewals—can make a difference.
Keep an eye on customers who downgrade or regularly miss payments. They’re often at risk of churning, so catching them early can help.
The Bottom Line on Tracking: Simple, but So Useful
ARR, MRR, and churn aren’t just buzzwords. Think of them as a health check. When you’re tracking these numbers, you’re not making guesses about your business’s future.
Companies that track these metrics often spot trouble faster, react sooner, and make better plans. That could mean hiring at the right time or catching a pricing issue early.
It doesn’t take long to set up the habit, even if you’re a small startup or side gig. The earlier you start, the quicker you’ll understand what actually makes your business grow (or shrink).
If you’ve got other people on the team, sharing these numbers keeps everyone focused on the important stuff—not just big launches or one-off customer wins.
Looking Ahead: Where to Dig In Next
If you want to keep learning about ARR, MRR, and churn, look for reading material from businesses that share their actual numbers and stories. Search for annual reports from big SaaS companies. Blogs like SaaStr, ProfitWell, and ChartMogul’s resource hub are filled with guides, charts, and real data.
You’ll also find comparison charts of the biggest subscription software tools on sites like G2 or Capterra. Test a few out—many offer free trials.
The main thing to remember is: these metrics only help if you actually track and use them. It’s not enough to know what they mean. Put them on your dashboard or report, and tie them to your goals. The rest is all about sticking with it, fixing things as you spot them, and adjusting as you grow. It’s not rocket science—but it pays off.
Additional Resources
Interested in learning more? Here are some resources you might find useful:
– ProfitWell’s free SaaS metrics guide
– ChartMogul’s blog and resources for ARR/MRR calculations
– SaaStr’s in-depth posts on subscription economics
– Annual SaaS industry benchmarking reports
– Real case studies from companies who share their ARR, MRR, and churn numbers
You won’t fix these numbers overnight, but knowing how they work puts you ahead of the curve. And it just makes the business side less stressful—and a lot more interesting.