MRR (Monthly Recurring Revenue)
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Monthly Recurring Revenue is the predictable, normalized revenue that a subscription-based business expects to generate from its active customers each month. It strips out one-time fees, setup charges, and non-recurring payments to focus purely on the stable, repeatable income that forms the financial foundation of a subscription business. MRR is one of the most closely tracked metrics in SaaS and other recurring revenue models.
In depth
MRR is calculated by multiplying the number of active paying customers by the average revenue per user per month, or by summing the monthly subscription value of every active contract. It is broken down into several components that together tell the full story of revenue momentum. New MRR is the revenue added from newly acquired customers. Expansion MRR captures additional revenue from existing customers who upgrade or purchase add-ons. Churned MRR represents revenue lost from customers who cancel or downgrade. Net new MRR combines all three to show the overall change in the recurring revenue base from one month to the next.
MRR is foundational to understanding the health and trajectory of a subscription business because it removes the noise of timing and one-off transactions that can distort monthly revenue figures. A business growing its MRR consistently while keeping churned MRR low is demonstrating strong product-market fit and customer retention, which are two of the most important indicators of long-term business viability. MRR also feeds directly into ARR projections, runway calculations, and valuation models, making it one of the first numbers investors ask about when evaluating a SaaS or subscription business. Tracking MRR by cohort over time further reveals how different customer groups behave and whether the business is improving or declining in its ability to retain and expand revenue from its customer base.
A worked example
Heading
Let's consider a real-world example of a B2B software business that wants to track and understand the movement in its recurring revenue base over a single month.
At the start of the month, the business has 80 customers each paying $500 per month, giving a starting MRR of $40,000.
During the month, the following changes occur:
5 new customers sign up at $500 per month (New MRR: +$2,500)
3 existing customers upgrade to a $750 plan (Expansion MRR: +$750, which is the additional $250 per customer x 3)
2 customers cancel their subscriptions (Churned MRR: -$1,000)
Calculate net new MRR:
Net New MRR = New MRR + Expansion MRR - Churned MRR
Net New MRR = $2,500 + $750 - $1,000 = $2,250
Closing MRR:
Closing MRR = Opening MRR + Net New MRR
Closing MRR = $40,000 + $2,250 = $42,250
The business grew its MRR by 5.6% in a single month. Annualizing the closing MRR gives an ARR of $507,000. Tracking these components separately each month reveals whether growth is being driven by new customer acquisition, expansion of existing accounts, or both, and how much churn is offsetting those gains.