MRR is the predictable subscription revenue a company earns in a typical month.
Key points
- MRR is a normalized measure of predictable monthly revenue from subscriptions [1].
- Annual plans are divided by 12 to count toward MRR, and one-time setup or service fees are excluded [2].
- MRR is usually broken into new, expansion, contraction and churned MRR, which together explain month-over-month change [1].
- Multiplying MRR by 12 gives Annual Recurring Revenue (ARR) [1].
- Net new MRR ties sales and retention together: new deals from the Sales Pipeline add to it, while Churn Rate subtracts from it.
- Investors distinguish MRR from bookings and recognized revenue, which follow different accounting rules [3].
How MRR is calculated
The simplest way to calculate MRR is to add up the monthly subscription fee for every active customer. A customer on a 100 dollar monthly plan contributes 100 dollars. A customer who prepaid 2,400 dollars for a year contributes 200 dollars, because annual contracts are normalized to a monthly amount [2]. One-time charges, such as implementation fees, consulting or hardware, are excluded because they will not recur. Discounts should be reflected at the amount the customer actually pays. Usage-based pricing complicates the picture; many companies count only committed minimums as MRR and track variable usage separately. Whatever rules a company picks, applying them consistently matters more than the exact choice.
The components of MRR
Change in MRR from one month to the next is best understood by splitting it into parts [1]. New MRR comes from customers who signed that month. Expansion MRR comes from existing customers who upgraded, added seats or bought add-ons. Contraction MRR is lost to downgrades, and churned MRR is lost to cancellations. Net new MRR equals new plus expansion minus contraction and churn. This breakdown shows whether growth is driven by acquisition, by existing accounts, or held back by churn. A company adding strong new MRR through Outbound Sales can still stall if churn is high, which is why Customer Lifetime Value (LTV) and retention metrics sit next to MRR on most dashboards.
MRR versus revenue and bookings
MRR is an operating metric, not an accounting figure. Recognized revenue follows accounting standards and spreads contract value over the service period, while bookings record the value of contracts signed in a period regardless of when they are billed. Andreessen Horowitz's startup metrics guide stresses that these numbers answer different questions and should not be mixed up [3]. MRR is favored by early B2B SaaS companies because it moves quickly and reflects recent sales and churn. For a bootstrapped company, MRR growth is also what pays for further growth. As companies grow and sign more annual or multi-year contracts, they often switch to reporting ARR. Either way, MRR connects top-of-funnel work such as Prospecting and Cold Outreach to the number the business is ultimately judged on.
Related terms
Outreach without the busywork.
PineLead finds new B2B prospects every day, qualifies them against your criteria and writes the first email in your voice. You approve — PineLead sends.
Start free with 100 credits →