Definition
Monthly recurring revenue (MRR) is the predictable revenue a subscription business expects to earn every month from its active customers. It's the core growth number for SaaS and other subscription companies.
Formula
MRR = sum of the monthly subscription value of every active customer
For annual plans, divide the annual price by 12. A customer paying $1,200 a year counts as $100 of MRR.
Example
- 80 customers on a $29 plan: $2,320
- 20 customers on a $99 plan: $1,980
- 5 customers on a $1,200-a-year plan: 5 × $100 = $500
MRR = $4,800
What to leave out
- One-time fees, setup charges and consulting
- Usage charges that change a lot month to month (track these separately)
- Free trials that haven't converted
- Discounts already given: count what customers actually pay
Types of MRR
- New MRR: from customers who joined this month
- Expansion MRR: from existing customers upgrading
- Churned MRR: lost from cancellations and downgrades
- Net new MRR: new + expansion − churned
Watching these separately shows why MRR moved, not just that it did. See churn rate and net revenue retention.
Common mistakes
- Counting an annual payment as a month of MRR.
- Counting revenue from customers who've already cancelled but haven't reached their end date as if they'll stay.
- Mixing one-off revenue in, which makes growth look better than it is.