Monthly Recurring Revenue (MRR) is the most fundamental metric in SaaS. It tells you how much predictable, recurring revenue your business generates each month — and it's the starting point for almost every other SaaS financial analysis.
Definition
Monthly Recurring Revenue (MRR) is the normalized monthly revenue generated from all active subscriptions. It excludes one-time payments, professional services, and any non-recurring revenue.
The Formula
MRR = Number of Paying Customers × Average Revenue Per Account (ARPA)
Or if you have multiple plans:
MRR = Σ (customers on each plan × plan price)
Types of MRR
Understanding MRR movement requires breaking it into components:
- New MRR — Revenue from new customers acquired this month
- Expansion MRR — Additional revenue from existing customers (upgrades, seat additions)
- Contraction MRR — Revenue lost from downgrades
- Churned MRR — Revenue lost from cancellations
- Net New MRR — New MRR + Expansion MRR − Contraction MRR − Churned MRR
MRR vs ARR
Annual Recurring Revenue (ARR) is simply MRR multiplied by 12:
ARR = MRR × 12
ARR is the preferred metric for companies with primarily annual contracts, while MRR is more useful for companies with monthly billing or high churn risk.
Why MRR Matters
MRR matters because it:
- Predicts cash flow — Recurring revenue means you can plan hiring, infrastructure spend, and marketing investment with confidence.
- Benchmarks growth — Month-over-month MRR growth rate is how investors and operators measure velocity.
- Diagnoses health — Breaking MRR into its components reveals whether growth is coming from acquisition, expansion, or both — and whether churn is eroding the gains.
Common Mistakes
- Including one-time fees — Setup fees, consulting, and professional services are not MRR.
- Annualizing incorrectly — A customer on an annual plan contributes MRR = annual contract value ÷ 12.
- Counting trials — Free trials have zero MRR until they convert to a paid plan.
Related Metrics
- Customer Churn Rate — The percentage of customers who cancel each month
- Net Revenue Retention — Whether existing customers expand or shrink over time
- Customer Lifetime Value — The total revenue expected from a customer relationship