Recurring revenue is the portion of revenue that is expected to be ongoing and renew for a defined temporal period of a year (Annual Recurring Revenue/ ARR) or month (Monthly Recurring Revenue/ MRR).
The form of recurring revenue that is appropriate to reference should be determined on the basis of the billing associated with that revenue. Determination of churn in customers on a monthly basis isn’t possible to determine when software is billed yearly. See: Open-core pricing
The amount of recurring revenue changes from one period to the next such that:
- Period 2 End ARR =
- Period 1 End ARR (same as Period 2 Beginning ARR) +
- ARR Added from New Customers in Period 2 +
- ARR Grown from Period 1 Customers in Period 2 -
- ARR Shrunk from Period 1 Customers in Period 2 -
- ARR Lost from Period 1 Customers in Period 2
- Net ARR Period 2 =
- Period 2 End ARR -
- Period 1 End ARR (same as Period 2 Beginning ARR)
- =
- ARR Added from New Customers in Period 2 +
- ARR Grown from Period 1 Customers in Period 2 -
- ARR Shrunk from Period 1 Customers in Period 2 -
- ARR Lost from Period 1 Customers in Period 2
The Net ARR is the net change from one period to the next accounting for new ARR, lost ARR, grown ARR, and shrunk ARR.