Monthly recurring revenue (MRR)
Monthly Recurring Revenue (MRR) is the normalized monthly value of all active subscription contracts at a point in time. It excludes one-time fees and non-recurring charges. Subscription businesses track it monthly to measure growth, churn, and expansion in near-real time.
MRR is the metric subscription businesses use to understand revenue momentum month to month. Because SaaS revenue is spread across the life of a contract rather than recognized at signing, MRR provides a consistent view of what the business is earning on an ongoing basis. A company with 500 customers paying an average of $400 per month has $200,000 in MRR, regardless of whether those customers signed one-month, one-year, or three-year agreements. That normalization is why operators use MRR as their day-to-day top-line number.
MRR is most useful when you break it into components. New MRR tracks revenue from first-time customers. Expansion MRR captures upsells and cross-sells to existing customers. Churned MRR measures revenue lost from cancellations. Contraction MRR reflects downgrades. Net New MRR (the sum of all four) tells you whether the business grew or shrank this month and exactly why. This waterfall view is the backbone of a monthly revenue review, because it shows churn early enough to act on it.
How to calculate it
Formula
MRR = (Number of active subscribers) × (Average revenue per account)
Multiply the total count of active paying subscribers by the average monthly revenue each account generates, then sum across all accounts for precision when plan mix varies significantly.
Variables
- Number of active subscribers
- The count of customers with an active, paid subscription in the current month, excluding free trials, churned accounts, and paused subscriptions.
- Average revenue per account (ARPA)
- The normalized monthly revenue per active customer, calculated by summing all recurring monthly charges and dividing by the total number of active accounts.
Worked example
A SaaS company has three plan tiers: 300 customers on the $100/month Starter plan, 120 on the $400/month Growth plan, and 30 on the $1,200/month Enterprise plan. MRR = (300 × $100) + (120 × $400) + (30 × $1,200) = $30,000 + $48,000 + $36,000 = $114,000. In February, they add 20 new Starter customers and lose 5 Growth customers: Net New MRR = +$2,000 New MRR − $2,000 Churned MRR = $0 net change.
Why it matters
Companies that track total bookings or cash receipts without separating MRR from one-time revenue routinely overestimate their recurring revenue base, which means they hire ahead of demand, set quotas against inflated baselines, and report numbers to investors that cannot be sustained. When a company discovers in a fundraise that 15% of its reported revenue is non-recurring, the recategorization can wipe millions from its valuation. Clean MRR protects hiring, quota, and investor decisions from a number that does not reflect durable revenue.
MRR is the foundation for commission calculations, quota setting, and capacity planning across every revenue function. Sales operations uses MRR to determine rep productivity (New MRR closed per rep per month), Customer Success uses it to size the expansion opportunity, and finance uses it to model cash flow. When MRR is tracked in real time and broken into components, the business can spot a spike in Churned MRR or a slowdown in Expansion MRR weeks before quarterly reporting would show it, while there is still time to correct course in the same period.
Benchmarks
- Good early-stage growth rate: 5–7% per week during Y Combinator (Paul Graham, Startup = Growth (2012))
- Expansion MRR as % of total MRR growth (best-in-class): 30–40% (Rule of thumb, not a published study)
- Gross MRR churn (healthy B2B SaaS): 0.5–1.5% per month (Rule of thumb, not a published study)
How teams use it
Account executives reference MRR when structuring deals and negotiating plan tiers. A rep who understands that moving a prospect from a $300/month plan to a $600/month plan adds $3,600 in ARR and directly affects their quota attainment will negotiate differently than one who thinks in total contract value alone. MRR framing also helps when a customer is considering a self-serve downgrade: the rep can quantify the revenue impact and present a counterproposal before the account contracts.
RevOps teams pull the MRR waterfall at the close of every month to produce the official revenue movement report. This report shows the board and executive team exactly how much MRR the company entered the month with, how much was added through new business and expansion, how much was lost to churn and contraction, and the ending MRR balance. Over time, the waterfall shows whether growth is coming from acquisition or retention, which should drive where go-to-market budget goes next.
A B2B SaaS company noticed that its total MRR was growing steadily at 8% per month, but the MRR waterfall revealed that Expansion MRR had dropped from 35% to 12% of total new MRR over six months while New MRR from new logos was carrying growth. The Customer Success team had been understaffed and not running structured expansion plays. After hiring two dedicated expansion-focused CSMs and building a renewal + upsell motion, Expansion MRR recovered to 28% within two quarters, reducing customer acquisition cost dependency significantly.
Common mistakes
Normalizing annual contracts incorrectly
Booking the full annual contract value in the first month instead of dividing by 12 creates a massive MRR spike at signing followed by zero new MRR for the remainder of the term. That makes month-to-month growth rates useless for operational decisions.
Including trial revenue in MRR
Counting free-trial or pilot customers who have not converted to a paid plan inflates MRR and makes churn look lower than it is. Conversion and retention problems then stay hidden until trials end and the revenue drops out.
Ignoring contraction MRR
Teams that track only churn (full cancellations) and ignore contraction (downgrades) understate revenue leakage, sometimes by 20–30%, which makes expansion motions look more effective than they are and understates the true cost of poor retention.
Tools for tracking MRR
MRR is tracked natively in subscription billing platforms like Stripe, Chargebee, and Recurly, and surfaced in SaaS analytics tools like ChartMogul and Baremetrics. CRM platforms with revenue tracking modules, such as Salesforce and HubSpot, can model MRR from opportunity data. Revenue operations platforms like Clari and Mosaic aggregate MRR across systems for forecasting and board reporting.
Frequently asked questions
What is a good MRR growth rate benchmark?
Early-stage SaaS companies (under $1M ARR) that are growing quickly should target 15–20% month-over-month MRR growth. At the $1M–$5M ARR stage, 10–15% monthly growth is strong. Once a company passes $5M ARR, the law of large numbers makes monthly growth rates naturally slower, and 5–8% monthly is healthy at that stage. These benchmarks vary significantly by business model, sales motion, and market.
How is MRR different from ARR?
MRR and ARR contain the same underlying information: ARR is MRR multiplied by 12. MRR is the preferred metric for operational decisions and monthly tracking because it matches the cadence most SaaS businesses run on: monthly billing cycles, monthly churn reporting, and monthly quota calculations. ARR is preferred for annual planning, fundraising, and investor reporting because most growth expectations are set on an annual basis.
Should I include usage-based revenue in MRR?
Only the committed, contractually guaranteed portion of usage-based revenue should be included in MRR. Variable usage above a contracted minimum is not recurring in the strict sense: it can fluctuate month to month. Many companies track a 'committed MRR' and a separate 'usage revenue' line. This gives a conservative, reliable MRR baseline while still capturing the full revenue picture in financial reporting.
What is Net New MRR?
Net New MRR is the sum of all MRR movements in a given month: New MRR (from new customers) + Expansion MRR (from upsells) - Churned MRR (from cancellations) - Contraction MRR (from downgrades). A positive Net New MRR means the business grew its recurring revenue base; a negative number means it shrank. Tracking Net New MRR month over month is one of the clearest indicators of whether growth is accelerating or decelerating.
How do I handle multi-year contracts in MRR?
A three-year contract worth $180,000 total should contribute $5,000 to MRR each month ($180,000 ÷ 36 months). Never recognize the full contract value upfront. If pricing escalates across years (for example, $4,000/month in Year 1, $5,000 in Year 2, $6,000 in Year 3), recognize the actual amount owed in each month instead of a blended average, and update MRR at each contract anniversary.