Monthly Recurring Revenue (MRR) is a normalized measure of the predictable and recurring revenue components of a subscription business. It's the amount of revenue a company expects to receive every month from its subscription customers.
Calculating MRR
The basic formula for MRR is:
MRR = Sum of monthly revenue from all paying customers
For different billing frequencies:
- Monthly subscription: Use the monthly amount
- Annual subscription: Divide the annual fee by 12
- Quarterly subscription: Divide the quarterly fee by 3
Types of MRR
- New MRR: Revenue from newly acquired customers
- Expansion MRR: Additional revenue from existing customers (upgrades, add-ons)
- Reactivation MRR: Revenue from customers who had previously churned but returned
- Contraction MRR: Reduction in revenue from existing customers (downgrades)
- Churned MRR: Revenue lost from canceled subscriptions
- Net New MRR: New MRR + Expansion MRR + Reactivation MRR - Contraction MRR - Churned MRR
Key MRR metrics and insights
- MRR Growth Rate: Month-over-month percentage increase in MRR
- Average Revenue Per Account (ARPA): MRR divided by total number of customers
- MRR Churn Rate: Percentage of MRR lost in a given month
- MRR Retention Rate: Percentage of MRR retained month-over-month
- Quick Ratio: (New MRR + Expansion MRR) / (Contraction MRR + Churned MRR)
Why MRR matters
- Cash flow management: Enables accurate financial planning
- Business health: Provides insight into growth momentum
- Performance tracking: Shows immediate impact of product or pricing changes
- Investor reporting: Standard metric for SaaS company evaluation
- Forecasting: Helps predict future revenue with greater accuracy
MRR is often considered the lifeblood metric for subscription businesses, offering a real-time view of performance and providing early warning signs of both problems and growth opportunities.
