What is Monthly Recurring Revenue (MRR)?

Monthly Recurring Revenue is the foundation of SaaS financial metrics.

In the world of subscription businesses, predictable revenue is king. But how do SaaS companies measure the heartbeat of their income? That’s where Monthly Recurring Revenue (MRR) comes in. MRR tells you how much recurring revenue your business can expect each month ignoring any one-time payments or variable spikes. It’s the clearest snapshot of business momentum and financial health. 

What you’ll hear:
“Our MRR grew by $50k last month.”
What it means:
The business added $50k in new, recurring subscription revenue—likely from new customers, expansions, or upgrades.

How is MRR used?

Track Growth: Recurring revenue is the best indicator of a company's trajectory. Managers and investors both gain value from breaking down the company's trajectory into monthly targets as this provides periodic checkpoints to re-estimate and re-budget for growth.

Compare Clients: As a company grows it needs to allocate resources to ensure it's clients remain content and successful. MRR is the quickest and most accurate measurement of a client's importance to the top line. One can quickly prefer a 10k MRR to a 5k MRR as that client is bringing in twice the revenue.

Divide Teams: For personnel heavy departments such as sales, customer success, customer support, its very common to divide your clients into MRR buckets, and assign teams in each department to manage those buckets. For example "The Mid-Market team will manage accounts with MRR between 50k and 250k, the Enterprise team will manage accounts with 250k+ MRR" 

Benchmark Costs: Cost of Services (the service equivalent of the more common Cost of Goods Sold COGS) is often benchmarked against MRR as a percentage to quickly gauge the contribution of a particular client / contract. Say you have a contract for 25k MRR, internally you may chose to target costs around 65% of MRR. While this has no particular mathematical significance, some teams find it easier to incorporate into planning sessions.

Types of MRR

New MRR: Revenue from brand new customers.
Expansion MRR: Revenue from upgrades, add-ons, or upsells. These are current customers purchasing more than previous.
Churned MRR: Lost recurring revenue from cancellations or downgrades.
Net New MRR: (New + Expansion) – Churned MRR — this is your true monthly growth.

Example: Net New MRR (5k + 12k) - 13k =4k Net MRR 

How does ARR relate to MRR?

Annual Recurring Revenue (ARR) is really just a variation of MRR. As expected ARR = MRR x 12. ARR is used for longer planning periods, when a monthly view would be cumbersome. 
Interestingly, ARR often differs from the actual annual revenue. The intention for ARR is long term future planning and not past tense accounting, accordingly ARR usually captures the current, fully executed contract rather than revenue already earned. For example, if I have a 12k ARR contract (1k MRR) that is signed on November 1st. If I am asked the ARR of the client, the answer is 12k not 2k (November 1st through December 31st).

Q&A - Monthly Recurring Revenue

Q: Should I include annual contracts in MRR?
A: Yes, but convert them to a monthly value. If someone pays $1,200 upfront for a year, that’s $100 MRR.

Q: Do trials count toward MRR?
A: No. MRR only includes committed, paying revenue. Trials don’t count until conversion.

Q: What about usage-based revenue?
A: If it’s predictable and charged monthly, include it. If it’s variable, exclude it or track it separately as Non-Recurring Revenue (NRR). 

Q: How do I calculate MRR when a customer prepays?
A: MRR is about recurring value, not cash in the bank. A customer might prepay for 12 months, but that revenue should be recognized monthly in MRR.  Revenue should be divided out into monthly portions regardless of cash payments.

Q: How is MRR different from ARR?
A: ARR is simply MRR × 12. Use ARR for big-picture planning. Use MRR for month-to-month growth management.