ARR/MRR (Recurring Revenue)
Recurring revenue is income that a business consistently earns at regular intervals, typically monthly or annually. It's common in subscription-based business models, where customers pay on a recurring basis for continued access to a product or service.
In SaaS, Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) are key metrics for tracking financial health and performance.
ARR/MRR Calculation
To begin, there are a few different objects in Rillet that can impact recurring revenue calculations:
Contracts
Invoices
Credit Memos
Overrides
These objects can include those created directly in Rillet or those synced in from other systems (ex. Stripe, internal billing systems, etc.)
Recurring revenue is calculated using the product type, line amount, and line dates set up in your Rillet account. Contract Line Items, Standalone Invoice Line Items, and Credit memo Line Items can all impact ARR.
The following three inputs will determined the ARR impact overtime for each line
Product Type - the product must have Count to MRR/ARR as true.
Product Dates - each line item will contain dates on all contracts, invoice and credit memos.
Product Amount - the amount of the line item
These three inputs are then used in the following calculation:
In addition to these inputs, overrides can be made to existing invoices or standalone on the ARR Waterfall > Rollforward View.
ARR Changes
Movements in recurring revenue review the total recurring revenue amount for a customer at the end of the monthly period compared to the prior period. and are determined as follows:
New Sales
A new sale in SaaS refers to acquiring a new customer who subscribes to your software for the first time. It typically involves a signed contract or completed subscription. A customer will be considered a new sale, if these conditions are met.
Customer is new (there is no previous recurring revenue value in Rillet)
Prior month RR value = $0
Current month RR value > $0
Churn
Churn refers to customers which are no longer are active, paying customers. A customer will be considered churn, if these two conditions are met.
Prior month MRR value > $0
Current month MRR value = $0
Expansion
Expansion refers to customers which have increased their total recurring spend. A customer is considered expansion if these two conditions are met:
Prior month RR value > $0
Current month RR value > Prior month RR value
Contraction
Contraction refers to customers which have decreased their total recurring spend, but still remain an active customer. A customer is considered contraction if these conditions are met:
Prior month RR value > $0
Current month RR value > $0
Current month RR value < Prior month RR value
Reactivation
Reactivtion refers to customers which had previously churned, but are now active. A customer is considered reactivation if these conditions are met:
Customer previously existed in Rillet
Prior month RR value = $0
Current month RR value > $0
Usage Impact
The usage impact refers to the increase or decrease in a customer's value based on variable subscription types (ex. usage based monthly subscriptions). The Usage Impact to recurring revenue is separated from the other categories as it can be more volatile, but is still able to be displayed in this category.
Usage Impact is calculated as follows:
FX Impact
If you use contracts with multiple currencies, it can often be difficult to report change in ARR as exchange rates are constantly changing. Rillet will automatically breakout the impacts to ARR caused by FX/exchange rates, into this separate category.
For more information, see articles in the Multi-Currency section.
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