MRR (Monthly Recurring Revenue)
The predictable recurring revenue a subscription business generates each month.
MRR is the monthly equivalent of ARR — the normalized recurring revenue a company can expect to collect this month from active subscriptions, regardless of actual billing cycle (annual contracts are divided by 12 to get their monthly contribution). It's the standard operating metric earlier-stage SaaS companies track week to week and month to month.
MRR is typically broken into components for deeper analysis: new MRR (from new customers), expansion MRR (existing customers upgrading), contraction MRR (existing customers downgrading), and churned MRR (canceled customers) — together these explain exactly why total MRR moved the way it did in a given month.
MRR separates recurring revenue from everything else. A company can collect a lot of cash in a month from one-time services, setup fees, or annual prepayments, but none of that tells an investor what the business will reliably earn next month. MRR does — which is why investors read MRR growth as one of the clearest signals of product-market fit in a subscription business.
The most common beginner error is counting an annual upfront payment in full. A $12,000 annual contract is $1,000 of MRR in each of twelve months, not $12,000 in the month it's collected. Free trials and freemium users add nothing until they convert to a paid plan.
MRR = ARR / 12, or sum of all active subscriptions' monthly-equivalent valueA company has 200 customers on a $250/month plan and 50 customers on a $3,000/year plan (equivalent to $250/month). Total MRR = (200 x $250) + (50 x $250) = $62,500.
Track your MRR waterfall (new, expansion, contraction, churn) monthly, not just the net total — the net number can look fine while masking a churn problem that expansion revenue is temporarily covering up.
How is MRR different from cash collected in a month?
MRR normalizes recurring revenue to a monthly run-rate regardless of billing frequency, while cash collected reflects actual invoicing and payment timing — a company billing annually can collect a full year's cash upfront while MRR still only counts 1/12th of that contract per month.
Should one-time fees and setup revenue count in MRR?
No. MRR includes only revenue that recurs on a predictable schedule, like subscriptions. Onboarding fees, professional services, and hardware sales belong in total revenue, not MRR.
Does MRR include free trials?
No. Users on free trials or free tiers add zero MRR until they start paying. Some companies track trial pipeline separately, but it shouldn't be mixed into reported MRR.
What's the MRR waterfall?
The breakdown of how MRR moved in a period: new MRR from new customers, expansion from existing customers spending more, contraction from downgrades, and churned MRR from cancellations.
Related terms
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