MRR (monthly recurring revenue) measures the recurring subscription revenue a business earns in a given month, normalized so annual contracts and monthly plans compare on the same monthly basis.

How it works

Core calculation:

MRR = Sum of (monthly subscription charges for all active customers)

For annual prepay: divide contract value by 12 for MRR contribution. A $12,000/year deal adds $1,000 MRR while active.

MRR bridges decompose changes month to month:

• New MRR: From new customers.
• Expansion MRR: Upsells, seat adds, price increases on existing accounts.
• Contraction MRR: Downgrades.
• Churn MRR: Lost customers.

Net new MRR = New + Expansion − Contraction − Churn. Net revenue retention (NRR) captures expansion minus churn on a cohort basis—often above 100% in strong enterprise SaaS.

ARR (annual recurring revenue) is typically MRR × 12—a shorthand for scale, not a separate counting method. Monetization quality matters: exclude one-time implementation, usage overages (sometimes tracked separately), and non-recurring services unless your model defines them in MRR policy.

Why it matters

• Founders: Report MRR consistently in monthly reporting. Define whether multi-year prepay counts as MRR or deferred revenue on the balance sheet (accounting differs from SaaS metrics).
• Investors: Value recurring businesses on MRR growth rate, gross margin on subscription revenue, and retention. Rule-of-thumb multiples vary by growth and NRR—always stage-specific.

Common mistake

Booking full annual prepay as one month’s MRR spike, or mixing GMV from marketplaces into MRR. Keep subscription recurring revenue separate from transactional volume.

Related ideas

See also net revenue retention (NRR), monetization, LTV:CAC, and monthly reporting.