Monthly recurring revenue
What is monthly recurring revenue (MRR)?
Monthly recurring revenue (MRR) is the normalized amount of predictable revenue a subscription business expects to earn every month from its active subscriptions. It converts plans billed on different cycles into a single monthly figure, so a business can compare and add them up on one timeline.
MRR is the core growth metric for SaaS and subscription companies. It measures the health of the recurring revenue base, feeds forecasts and valuations, and shows whether the business is expanding or shrinking month over month. It counts only recurring subscription charges and excludes one-time fees such as setup, onboarding, or usage overages.
Key facts
- Formula: MRR = active subscriptions × average revenue per account (ARPA)
- Also known as: monthly recurring revenue, sometimes shortened to recurring revenue
- Components: new MRR, expansion MRR, contraction MRR, churned MRR, and reactivation MRR
- Excludes: one-time charges, setup fees, and non-recurring usage
- Related metric: annual recurring revenue (ARR), which equals MRR × 12
How MRR is calculated
MRR normalizes every plan to its monthly value, then sums those values across all active subscriptions.
- Normalize each plan to a monthly figure. Divide annual plans by 12 and keep monthly plans as they are. A $1,200 annual plan contributes $100 of MRR.
- Sum across active subscriptions. Add the normalized monthly value of every active subscription. A shortcut is to multiply the count of active accounts by ARPA.
- Track the movement components. Net new MRR = new MRR + expansion MRR + reactivation MRR − contraction MRR − churned MRR.
As an illustration, 200 active customers each paying $50 per month produce $10,000 in MRR. If 10 of them upgrade to a $70 plan the following month, expansion MRR adds $200 and total MRR rises to $10,200.
What affects MRR
MRR moves as subscriptions start, change, and end:
- New MRR from customers who start a subscription, often through set up at checkout.
- Expansion MRR from existing customers who upgrade, add seats, or buy add-ons.
- Contraction MRR from downgrades and removed add-ons that lower a customer's monthly charge.
- Churned MRR from cancellations (voluntary churn) and failed renewals (involuntary churn).
Involuntary churn is worth isolating because it is recoverable. When a scheduled is declined, the revenue drops out of realized MRR even though the customer never chose to leave. A process retries those declined charges and restores the lost MRR each time a retry succeeds.
Why it matters
MRR turns a mix of billing cycles into one number leaders can act on:
- Forecasting. Because the revenue repeats, next month's baseline is known before the month starts, which makes cash-flow and hiring plans more reliable than counting one-off sales.
- Growth diagnosis. Splitting net new MRR into expansion, contraction, and churn shows whether growth comes from winning new customers or from existing ones spending more.
- Valuation. Investors price subscription businesses on recurring revenue and its growth rate, so the MRR trend feeds directly into what the company is worth.
