What is MRR (Monthly Recurring Revenue)?

Definition

Monthly Recurring Revenue (MRR) is the total predictable revenue a subscription business earns each month from active customers. It normalizes all subscription plans — monthly, quarterly, annual — into a single monthly figure. MRR is the foundational metric for SaaS businesses because it represents the repeating revenue baseline that the entire business model depends on.

Detailed Explanation

MRR is more than just total monthly revenue — it specifically counts predictable, recurring subscription revenue. One-time fees, setup charges, professional services, and usage-based overages are typically excluded from MRR because they're not predictable and repeating.

MRR is broken into components that tell the story of how your revenue base is changing: New MRR (revenue from new customers), Expansion MRR (upgrades, additional seats, cross-sells from existing customers), Contraction MRR (downgrades from existing customers), and Churned MRR (revenue from cancelled customers). Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR.

For annual contracts, MRR is calculated by dividing the annual contract value by 12. A customer paying $12,000/year contributes $1,000 to MRR. This normalization is important because it allows apples-to-apples comparison across different billing cycles. However, be aware that annualizing monthly contracts (multiplying monthly MRR by 12 to get ARR) can overstate revenue if monthly customers churn at higher rates than annual customers.

Why It Matters

MRR is the pulse of a SaaS business. It tells you whether the business is growing, stagnating, or shrinking — and why. By tracking MRR components, you can diagnose problems: is Churned MRR rising (retention issue)? Is New MRR declining (acquisition problem)? Is Expansion MRR flat (no upsell motion)? Investors use MRR to evaluate SaaS businesses, and MRR growth rate is one of the primary metrics for SaaS valuation. Every dollar of MRR lost to involuntary churn from failed payments is a dollar that directly erodes both your current MRR and your MRR growth rate.

How to Calculate

MRR = Sum of monthly subscription value of all active customers. For annual plans: Annual Price / 12 = Monthly MRR contribution. For quarterly plans: Quarterly Price / 3. Example: 100 customers on $50/month plan + 50 customers on $1,200/year plan. MRR = (100 x $50) + (50 x $100) = $5,000 + $5,000 = $10,000.

Practical Example

A SaaS company has the following at month end: $80,000 starting MRR. +$8,000 New MRR from 20 new customers. +$3,000 Expansion MRR from 15 customers upgrading. -$1,500 Contraction MRR from 5 customers downgrading. -$4,000 Churned MRR from 10 cancelled customers. Net New MRR = $8,000 + $3,000 - $1,500 - $4,000 = $5,500. Ending MRR = $80,000 + $5,500 = $85,500.

Industry Benchmarks

SegmentBenchmark
Pre-seed SaaS$0-$10K MRR
Seed stage SaaS$10K-$100K MRR
Series A SaaS$100K-$500K MRR
Series B SaaS$500K-$2M MRR
Good MRR Growth Rate10-20% month-over-month (early stage)

Related Terms

ARR (Annual Recurring Revenue)

Annual Recurring Revenue (ARR) is the annualized value of a company's recurring subscription revenue...

Revenue Churn

Revenue churn (also called MRR churn or dollar churn) is the percentage of recurring revenue lost fr...

NRR (Net Revenue Retention)

Net Revenue Retention (NRR), also called Net Dollar Retention (NDR), measures the percentage of reve...

Churn Rate

Churn rate (also called customer churn rate or attrition rate) is the percentage of customers who ca...

LTV (Customer Lifetime Value)

Customer Lifetime Value (LTV, CLV, or CLTV) is the total revenue a business can expect from a single...

Frequently Asked Questions

What counts as MRR and what doesn't?+
MRR includes: subscription fees, recurring platform fees, recurring add-ons. MRR excludes: one-time setup fees, professional services, usage-based overage charges, non-recurring discounts, and credits. The test is: will this revenue repeat next month without any new action? If yes, it's MRR.
How do I handle discounts and coupons in MRR?+
Count the actual amount collected, not the list price. A $100/month plan with a 20% discount is $80 MRR, not $100. For time-limited discounts (first 3 months at 50% off), count the discounted amount during the discount period and update to full price when it expires.
Should I calculate MRR at the start or end of the month?+
Convention is to report ending MRR — the MRR at the last day of the month. This captures all changes (new customers, churns, upgrades) that occurred during the month. Starting MRR is the previous month's ending MRR.
How does failed payment affect MRR?+
A failed payment doesn't immediately reduce MRR in most accounting approaches — the subscription is still active during the dunning/grace period. MRR decreases when the subscription is actually cancelled due to an unrecovered payment failure. This is why dunning grace periods matter: extending the recovery window keeps MRR intact longer and gives you more time to recover the payment.
What is the relationship between MRR and ARR?+
ARR = MRR x 12. ARR (Annual Recurring Revenue) is simply the annualized version of MRR. ARR is more commonly used in investor communications and company valuations, while MRR is used for operational tracking and month-to-month analysis.

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