Monthly Recurring Revenue (MRR)
Quick Definition
Monthly Recurring Revenue (MRR) is the amount of revenue that a subscription-based business can reliably expect to receive every month from its active subscribers.
A key metric for subscription-based businesses that measures the predictable revenue generated each month from active subscriptions.
💡 Quick Example
A SaaS company has 100 customers paying $50/month and 50 customers paying $100/month. MRR = (100 × $50) + (50 × $100) = $10,000.
Monthly Recurring Revenue (MRR) is the heartbeat of any subscription business. It's the metric that tells you how much predictable revenue you can count on each month, making it essential for planning, forecasting, and measuring the health of your subscription-based company.
Understanding MRR
MRR represents the normalized monthly revenue from all active subscriptions. Unlike traditional revenue that can fluctuate wildly month to month, MRR provides a clear, predictable view of your business's recurring income stream.
Why MRR Matters
- Predictability: Forecast future revenue with confidence
- Growth tracking: Measure month-over-month growth trends
- Investor communication: The metric VCs and investors focus on
- Business planning: Make informed decisions about hiring, spending, and expansion
- Valuation: SaaS companies are often valued as multiples of ARR (MRR × 12)
Types of MRR
New MRR
Revenue from brand new customers who signed up during the month.
Expansion MRR
Additional revenue from existing customers through upgrades, add-ons, or increased usage.
Churned MRR
Revenue lost from customers who cancelled their subscriptions during the month.
Contraction MRR
Revenue decrease from existing customers through downgrades or reduced usage.
MRR Calculation
Basic Formula
MRR = Total Number of Subscribers × Average Revenue Per User (ARPU)
Multi-Tier Calculation
MRR = Sum of (Subscribers in each tier × Price of each tier)
Handling Annual Subscriptions
Annual Subscription MRR = Annual Price ÷ 12
Key MRR Metrics
Net New MRR
Net New MRR = New MRR + Expansion MRR - Churned MRR - Contraction MRR
MRR Growth Rate
MRR Growth Rate = (Current Month MRR - Previous Month MRR) / Previous Month MRR × 100
Net Revenue Retention (NRR)
NRR = (Starting MRR + Expansion - Churn - Contraction) / Starting MRR × 100
Improving MRR Performance
Increasing New MRR
- Optimize conversion rates from trial to paid
- Expand marketing channels for customer acquisition
- Improve product positioning and value communication
- Enhance onboarding to reduce time to value
Maximizing Expansion MRR
- Design natural upgrade paths between tiers
- Implement usage-based pricing components
- Use customer success to drive growth
- Develop complementary add-on products
Reducing Churn
- Improve customer onboarding processes
- Provide proactive customer support
- Monitor and help at-risk customers
- Address common cancellation reasons
MRR Reporting and Analysis
Essential Reports
- MRR waterfall showing month-over-month changes
- Cohort retention analysis
- Segmentation by customer type or plan
- Trend analysis and seasonality patterns
Common Mistakes
- Including one-time revenue in MRR calculations
- Not properly handling annual subscriptions
- Focusing only on new MRR while ignoring churn
- Inconsistent calculation methods
MRR in Different Business Models
Pure SaaS
Clean recurring revenue with predictable subscription patterns.
Freemium
Track conversion from free to paid users and upgrade rates.
Usage-Based Pricing
Variable MRR based on customer consumption patterns.
Hybrid Models
Combination of subscription and usage components requiring separate tracking.
MRR is the foundation for understanding, managing, and growing a subscription business. By tracking MRR and its components carefully, founders can make data-driven decisions that drive sustainable growth and build valuable, predictable businesses.