Definition
Monthly Recurring Revenue is a management metric used primarily by subscription and recurring-revenue businesses to measure the recurring revenue associated with active customers in a given month.
MRR generally excludes revenue that is not expected to recur, such as one-time implementation fees, consulting projects, or other non-recurring charges. Companies should define their MRR methodology consistently because there is no single accounting standard that universally defines the metric.
MRR is particularly useful for tracking how a recurring-revenue business changes over time as it acquires customers, expands existing accounts, loses customers, or experiences downgrades.
How is MRR calculated?
A simple calculation is:
MRR = Sum of monthly recurring revenue from active customers
For example, if a company has:
100 customers paying $200 per month
50 customers paying $500 per month
Then:
MRR = (100 × $200) + (50 × $500)
MRR = $20,000 + $25,000
MRR = $45,000
MRR should be calculated using the company's defined recurring-revenue methodology.
What is included in MRR?
Depending on the business model, MRR may include:
Monthly subscriptions
Monthly recurring licences
Recurring platform fees
Recurring service contracts
Recurring customer upgrades
The key characteristic is that the revenue is expected to recur and forms part of the company's ongoing revenue base.
What is excluded from MRR?
MRR generally excludes one-time revenue, including:
Setup fees
Implementation fees
One-time professional services
Consulting projects
Hardware purchases
Other non-recurring transactions
The treatment of usage-based revenue can vary. A company should clearly disclose how it handles variable or consumption-based revenue if it includes it in MRR.
MRR vs. revenue
MRR is not the same as accounting revenue.
Revenue represents income recognised during a reporting period under the applicable accounting framework.
MRR is an operating metric that estimates the recurring monthly revenue base.
For example, a customer may pay a 12-month subscription upfront. The company could receive the full cash payment immediately while recognising revenue over the relevant service period. Its MRR would reflect the recurring monthly value rather than the entire cash payment.
→ Revenue
MRR vs. ARR
MRR measures recurring revenue on a monthly basis.
ARR measures recurring revenue on an annualised basis.
A simplified relationship is:
ARR = MRR × 12
For example:
Metric | Amount |
|---|---|
MRR | $100,000 |
ARR | $1.2 million |
This calculation assumes the company's recurring revenue base remains constant.
What causes MRR to increase?
MRR can increase through:
New customer MRR
Revenue added from newly acquired recurring customers.
Expansion MRR
Additional recurring revenue from existing customers, such as additional seats, products, or usage.
Price increases
Higher recurring prices can increase MRR if customers remain subscribed.
What causes MRR to decrease?
MRR can decline through:
Churned MRR
Recurring revenue lost when customers cancel.
Contraction MRR
Recurring revenue lost when existing customers downgrade.
These movements can be tracked separately to understand the underlying health of the recurring-revenue base.
What is net new MRR?
Net new MRR measures the overall change in recurring monthly revenue during a period after accounting for additions and reductions.
A simplified formula is:
Net New MRR = New MRR + Expansion MRR − Churned MRR − Contraction MRR
For example:
New MRR: $20,000
Expansion MRR: $5,000
Churned MRR: $3,000
Contraction MRR: $2,000
Net New MRR = $20,000
This helps distinguish growth generated by new customers from growth generated by existing customers.
Why does MRR matter?
MRR gives recurring-revenue companies a relatively simple way to monitor commercial momentum.
It can help track:
Revenue growth
Customer acquisition
Customer expansion
Churn
Contraction
Recurring revenue scale
Fundraising progress
Investors may also use MRR alongside ARR, retention, margins, customer acquisition costs, and cash burn when evaluating subscription businesses.
MRR alone does not indicate profitability or business quality.
MRR and fundraising
For a subscription startup, MRR can provide investors with a more granular view of commercial development than annual accounting revenue alone.
An investor may examine:
Current MRR
MRR growth
New MRR
Expansion MRR
Churned MRR
Contraction MRR
Net new MRR
Customer retention
Gross margin
Customer acquisition efficiency
The relevance of MRR depends on the company's business model. It is generally much more useful for subscription businesses than for businesses whose revenue is primarily transactional.
Example
A SaaS company begins a month with $80,000 MRR.
During the month:
New customers add $15,000 MRR
Existing customers add $5,000 MRR
Customer cancellations remove $6,000 MRR
Downgrades remove $2,000 MRR
The company's ending MRR is:
$80,000 + $15,000 + $5,000 − $6,000 − $2,000 = $92,000
The company therefore added $12,000 in net new MRR during the month.
Common misconception
MRR is simply the company's monthly revenue.
Not necessarily.
MRR specifically focuses on the recurring component of revenue.
A company could generate $200,000 in total revenue during a month but have only $100,000 MRR if the remaining $100,000 came from one-time transactions.
Conversely, MRR can help show the recurring revenue base even when accounting revenue for the period is affected by billing schedules or revenue-recognition rules.
