Understanding Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is one of the most critical metrics for SaaS (Software as a Service) and subscription-based businesses. It represents the predictable, normalized revenue a company expects to receive every month. Tracking MRR provides insight into financial health, growth momentum, and the overall viability of the business model.

How is MRR Calculated?

The basic formula for MRR is straightforward:

MRR = Sum of Monthly Revenue from All Active Subscriptions

Alternatively, you can calculate it per customer:

MRR = Average Revenue Per Account (ARPA) x Total Number of Paying Customers

It's crucial to only include recurring revenue components. One-time fees, setup charges, or professional service costs should typically be excluded from the MRR calculation to maintain its focus on predictable income.

Why is MRR Important?

• Financial Forecasting: MRR provides a reliable baseline for projecting future revenue and making informed financial decisions. Our MRR projection calculator helps visualize this growth.
• Growth Measurement: Changes in MRR over time (New MRR, Expansion MRR, Churn MRR) clearly indicate business growth or contraction.
• Investor Confidence: Investors heavily rely on MRR and MRR growth rates to assess a subscription business's health and potential.
• Performance Benchmarking: It allows businesses to compare their performance against industry standards and competitors.
• Decision Making: Understanding MRR trends helps in resource allocation, pricing strategy adjustments, and sales/marketing focus.

Key MRR Components

Understanding the components that influence your total MRR is vital for strategic planning:

• New MRR: Revenue added from newly acquired customers during the month.
• Expansion MRR: Additional revenue from existing customers upgrading plans or adding services (also known as upgrades or upsells).
• Churn MRR: Revenue lost from customers who cancel their subscriptions or downgrade plans during the month.
• Net New MRR: The net change in MRR for the month (New MRR + Expansion MRR - Churn MRR).

Use our free MRR growth calculator above to model how different growth rates impact your future revenue potential based on these dynamics.