What Is MRR? Monthly Recurring Revenue Explained
MRR (Monthly Recurring Revenue) is the predictable revenue your subscription business generates each month from active subscriptions. It is the single most important metric for any SaaS business because it represents the baseline revenue you can expect without signing any new customers.
Quick Answer
MRR = Active Customers × Average Monthly Subscription Price
Example: 420 customers paying $99/month = $41,580 MRR
Why MRR Matters
MRR is the heartbeat of a SaaS business. Investors use it to gauge business size and growth trajectory. It forms the basis for ARR (MRR × 12), which is the standard currency of SaaS valuations. Track MRR month over month to spot trends early — flat or declining MRR is a warning sign that churn or contraction is outpacing your new business.
How to Calculate MRR
The basic formula is simple: multiply your total active customers by your average monthly subscription price. If you have multiple pricing tiers, sum the recurring revenue from each tier.
MRR Formula
MRR = Active Customers × Average Monthly Subscription Price
For multi-tier pricing, calculate MRR per tier and sum them:
- Starter plan: 300 customers × $29 = $8,700
- Pro plan: 100 customers × $99 = $9,900
- Enterprise plan: 20 customers × $499 = $9,980
- Total MRR = $28,580
What to Include and Exclude from MRR
Include in MRR
- Recurring subscription fees from paying customers
- Recurring add-ons and seat-based charges
- Committed monthly contract revenue
- Recurring usage-based revenue (if contractually committed)
Exclude from MRR
- One-time setup or onboarding fees
- Professional services and consulting revenue
- Usage overages above committed amounts
- Free trial users (not yet paying)
- Non-recurring add-on purchases
The MRR Waterfall: New, Expansion, Contraction, Churn
MRR movements come from four sources. Tracking each separately tells you whether growth comes from acquiring new customers or from existing ones spending more.
- New MRR: Revenue from customers who signed up this month
- Expansion MRR: Additional revenue from existing customers upgrading or adding seats
- Contraction MRR: Revenue lost from existing customers downgrading or reducing seats
- Churned MRR: Revenue lost from customers who cancelled entirely
Net New MRR = New MRR + Expansion MRR − Contraction MRR − Churned MRR. A healthy SaaS business grows MRR through a mix of new business and expansion. If all growth comes from new customers while expansion is flat, you may have an upsell problem.
MRR Benchmarks by Stage
The absolute MRR number matters less than the growth rate. Here's what investors expect at each stage:
| Stage | MoM MRR Growth Target |
|---|---|
| Seed / Pre-Seed | 10%+ MoM |
| Series A | 6-8% MoM |
| Series B+ | 4-6% MoM |
| $10M+ ARR | 2-4% MoM |
Common MRR Mistakes
Common Mistake
Including one-time fees, professional services, or usage overages in MRR. MRR should only include committed recurring subscription revenue. Another common error is counting customers on free trials — they are not yet paying and should be excluded until they convert.
MRR vs ARR
ARR (Annual Recurring Revenue) is simply MRR multiplied by 12. While MRR is the operational metric you track day-to-day, ARR is the metric used in valuation discussions. SaaS companies are often valued at a multiple of ARR, typically 6-15x depending on growth rate, net retention, and market conditions.
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