Business Strategy
Definition
MRR (Monthly Recurring Revenue) is the predictable, recurring revenue a subscription business expects to receive every month. It is one of the most important metrics for SaaS and subscription companies, forming the foundation of revenue forecasting, valuation, and growth analysis.
MRR is calculated by multiplying the number of active subscribers by the average revenue per user (ARPU) per month. For annual plans, divide the annual contract value by 12. MRR is typically broken into components: New MRR (from new customers), Expansion MRR (from upgrades or additional seats), Churned MRR (lost from cancellations), and Contraction MRR (from downgrades). Net New MRR = New + Expansion − Churned − Contraction. A healthy SaaS business grows MRR month-over-month while maintaining net negative churn — meaning expansion from existing customers more than offsets cancellations. MRR is distinct from ARR (Annual Recurring Revenue = MRR × 12) and from recognized revenue under GAAP, which may spread annual contract revenue differently. Investors use MRR as a primary indicator of business health and growth trajectory.
MRR is the North Star metric for subscription businesses because it makes revenue predictable and compounds. Understanding your MRR components — especially churn rate and expansion rate — reveals where growth is coming from and where it's leaking. A financial advisor or business consultant can help you build MRR dashboards, model growth scenarios, and identify the metrics that most affect your MRR trajectory.