Monthly Recurring Revenue (MRR)
The predictable, normalized revenue a subscription business expects to earn each month from its active recurring subscriptions.
Also known as: MRR
Monthly Recurring Revenue, or MRR, is the amount of predictable, recurring revenue a subscription business expects to earn every month from its active customers. It normalizes all subscription contracts to a monthly value, so a company can see the steady baseline of income it can count on regardless of one-time fees, setup charges, or usage spikes.
MRR matters because subscription businesses live or die on predictability. It gives revenue teams a clean signal of momentum: whether the business is growing, holding steady, or shrinking. Because it strips out one-off payments, MRR is a more honest measure of underlying health than total monthly billings, and it is the foundation for forecasting, valuation, and board reporting in SaaS and other recurring-revenue models.
How MRR is calculated
The simplest way to calculate MRR is to add up the monthly subscription value of every active customer. For customers billed monthly, you use their monthly fee directly. For customers on annual or multi-year contracts, you divide the total contract value by the number of months it covers to get a normalized monthly figure.
A common shortcut is to multiply the number of active accounts by the average revenue per account (ARPA). Whichever method you use, the key rule is consistency: only recurring subscription revenue counts. One-time setup fees, professional services, and variable usage overages that are not contractually recurring should be excluded.
- Sum the normalized monthly value of all active subscriptions.
- Divide annual contracts by 12 to reach a monthly value.
- Exclude one-time fees, implementation charges, and non-recurring revenue.
- Alternative formula: number of accounts multiplied by average revenue per account.
The components of MRR movement
Revenue teams rarely look at total MRR alone. They break down changes month over month into components that explain what drove the number up or down. This makes MRR diagnostic rather than just descriptive.
Tracking these movements separately shows whether growth comes from winning new customers or expanding existing ones, and whether losses are due to downgrades or full cancellations.
- New MRR: revenue added from brand-new customers.
- Expansion MRR: additional revenue from existing customers upgrading or adding seats.
- Contraction MRR: revenue lost when existing customers downgrade.
- Churned MRR: revenue lost when customers cancel entirely.
- Net new MRR: new plus expansion minus contraction and churn.
Where MRR comes up in sales and revenue teams
For SDRs and AEs, MRR is often how deals are measured and quotas are framed in subscription businesses, since the recurring value of a closed deal matters more than a one-time price tag. Sales leaders use MRR to forecast, set targets, and understand pipeline in recurring terms.
Beyond sales, MRR drives investor and board conversations, informs hiring and budgeting, and anchors metrics like customer lifetime value and net revenue retention. Understanding it helps every revenue team member speak the shared language of a subscription business.
- Framing deal value in recurring rather than one-time terms.
- Forecasting future revenue and setting quotas.
- Reporting business health to leadership and investors.
- Feeding into related metrics like LTV and net revenue retention.
MRR versus neighbouring terms
MRR sits alongside several closely related metrics that are easy to confuse. Annual Recurring Revenue (ARR) is simply MRR multiplied by 12, used by businesses that sell mostly annual contracts. Total revenue or bookings can include one-time charges that MRR deliberately leaves out.
The distinction from bookings is especially important: bookings reflect the total contract value committed, while MRR reflects the normalized monthly recognized recurring portion. Confusing the two overstates how much predictable income the business actually has each month.
- ARR equals MRR times 12, for annual-focused businesses.
- Bookings include committed and one-time amounts MRR excludes.
- Total revenue may mix recurring and non-recurring income.
- MRR is the monthly, recurring-only view of the business.
Common mistakes with MRR
Because MRR is a normalized metric, small definitional errors compound into misleading numbers. The most frequent mistake is including revenue that is not truly recurring, which inflates MRR and creates false confidence.
Another common error is mishandling annual contracts by counting the full year in a single month rather than spreading it evenly. Discounts and free trials also need careful treatment so that MRR reflects what customers actually pay on a recurring basis.
- Counting one-time fees, setup charges, or services as recurring.
- Booking an annual contract as a single month of MRR instead of dividing by 12.
- Ignoring discounts and counting list price rather than actual paid amount.
- Including trial or unpaid accounts that generate no recurring revenue.
- Failing to subtract churn and contraction when reporting growth.
Frequently asked questions
What is the difference between MRR and ARR?
They measure the same thing at different time scales. MRR is the recurring revenue expected each month, while ARR is its annual equivalent, calculated as MRR multiplied by 12. Businesses selling mostly monthly plans favor MRR, while those selling annual contracts often lead with ARR.
Should one-time fees be included in MRR?
No. MRR captures only predictable, recurring subscription revenue. Setup fees, implementation charges, professional services, and one-off purchases should be excluded because they do not repeat month after month and would distort the metric.
How do you handle annual contracts in MRR?
Divide the total annual contract value by 12 to get its normalized monthly value, then include that figure in MRR. This spreads the revenue evenly across the months it covers rather than counting the entire year in the month the deal was signed.