Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the predictable subscription revenue a business expects to earn each month from its active customers, normalized to a monthly amount. Annual and quarterly plans are converted to a monthly figure, and one-time charges such as setup or consulting fees are excluded. MRR is the base number that most other subscription metrics are calculated from.
How Monthly Recurring Revenue Works
MRR is the sum of every active customer's recurring monthly charge. A few rules keep it consistent:
- Normalize longer plans: an annual plan is divided by 12, so $1,200 per year counts as $100 MRR.
- Exclude one-time charges: setup fees, onboarding packages, consulting and taxes are not recurring.
- Handle discounts by rule: a permanent discount lowers MRR. Treatment of short promotional discounts varies between tools, so document your choice.
- Count only paying subscriptions: free plans and free trials add nothing until they convert.
MRR changes every month through five movements:
- New business MRR from new customers.
- Expansion MRR from existing customers paying more.
- Contraction MRR from downgrades.
- Churned MRR from cancellations.
- Reactivation MRR from former customers who return.
Together they give net new MRR:
Net new MRR = New + Expansion + Reactivation - Contraction - Churned MRR
Why Monthly Recurring Revenue Matters
MRR gives a single, comparable view of a subscription business's size and momentum. It smooths out billing timing, so a month full of annual renewals does not look like a sudden boom.
The movements matter more than the total. A company adding plenty of new MRR while losing almost as much to cancellations has a retention problem, not an acquisition problem. MRR is also the input for churn rates, Net Revenue Retention (NRR), customer lifetime value and forecasting, so mistakes in MRR spread into every metric built on it.
Monthly Recurring Revenue Example
A SaaS tool has 80 customers on a $50 monthly plan ($4,000) and 20 customers on an annual plan at $960 per year, which is $80 a month each ($1,600). One customer also paid a one-time $500 onboarding fee.
MRR = $4,000 + $1,600 = $5,600. The onboarding fee is excluded.
The next month brings $600 in new MRR, $200 in expansion revenue, $100 in contraction and $300 in churned MRR. Net new MRR = 600 + 200 - 100 - 300 = $400, so MRR ends the month at $6,000.
Monthly Recurring Revenue vs. Revenue
MRR is not the cash collected in a month, and it is not the revenue an accountant recognizes. A customer paying $1,200 upfront for a year brings in a large payment once but contributes the same $100 of MRR every month. MRR is an operating metric for tracking subscription momentum. For a yearly view, the same figure is annualized as Annual Recurring Revenue (ARR), usually MRR multiplied by 12.