What is MRR? Monthly Recurring Revenue Explained

Every subscription business lives or dies by one number: the revenue it can count on next month. That number is Monthly Recurring Revenue, or MRR. It strips away one-time charges, normalises annual contracts to a monthly cadence, and gives you a single figure that reflects whether your business is growing, stalling, or contracting. If you run a SaaS product and you are not tracking MRR rigorously, you are flying without instruments.

Understanding what is MRR, and how to break it into its component parts, is the foundation for every other SaaS metric: churn rate, LTV/CAC ratio, quick ratio, and net revenue retention all depend on an accurate MRR figure. This guide covers the formula, the four types of MRR, stage- specific benchmarks, common mistakes, and how to handle edge cases like annual plans and usage-based pricing.

The MRR Formula

At its simplest, MRR is:

MRR = Number of Active Subscribers × Average Revenue Per Account (ARPA)

If you have 400 paying customers at an average of $95/month, your MRR is $38,000. But that headline figure hides critical dynamics. Two companies can both report $38K MRR while one is growing healthily and the other is bleeding customers. The difference only becomes visible when you decompose MRR into its four types.

Run your own numbers instantly with the SaaS Metrics Calculator.

Four Types of MRR

When people ask what is MRR, the answer is incomplete without covering all four components. Each one tells a different part of your revenue story.

1. New MRR, Revenue from first-time customers acquired during the period. If 25 new customers sign up at an average of $120/month, you added $3,000 in new MRR. This is driven by your sales and marketing engine.

2. Expansion MRR , Additional revenue from existing customers who upgrade plans, add seats, or purchase add-ons. Expansion MRR is the most capital- efficient revenue you can generate because the customer acquisition cost is near zero. Best-in-class SaaS companies generate enough expansion revenue to offset all churn, a state called negative net churn.

3. Contraction MRR , Revenue lost when existing customers downgrade to a cheaper plan or remove seats. A customer moving from $200/month to $80/month represents $120 in contraction MRR. This is the most under-tracked component: many teams lump it in with churn, losing the signal that customers are unhappy but not yet gone.

4. Churned MRR, Revenue lost from customers who cancel entirely. If 8 customers paying an average of $150/month leave, that is $1,200 in churned MRR. Track this with our Churn Rate Calculator to understand the downstream impact.

Your Net New MRR, the figure that reveals true momentum, combines all four:

Net New MRR = New MRR + Expansion MRR − Contraction MRR − Churned MRR

Worked example: Suppose in March your SaaS company recorded $3,000 in new MRR, $1,500 in expansion MRR, $400 in contraction MRR, and $1,200 in churned MRR. Your net new MRR for March is $3,000 + $1,500 − $400 − $1,200 = $2,900. If January MRR was $38,000, your ending MRR for March is $40,900, a 7.6% monthly increase.

MRR Growth Benchmarks by Stage

What counts as "good" MRR growth depends entirely on your stage. According to OpenView SaaS Benchmarks 2025, median and top-quartile figures break down as follows:

Benchmark your own metrics against other SaaS companies with the SaaS Benchmark to see where you sit across MRR growth, churn, LTV:CAC, and gross margin.

Note that growth rates naturally decelerate as the base gets larger , 5% monthly growth on $1M MRR is $50K in new net revenue, which is harder to achieve than 20% on $10K ($2K). Investors understand this and evaluate your growth rate relative to your stage, not against an absolute threshold. For a deeper look at how these metrics fit together, see the complete SaaS metrics guide.

How to Calculate MRR From Mixed Pricing

Most SaaS companies do not have a single pricing model. Handling edge cases incorrectly is a common source of MRR inaccuracy.

Annual plans: Divide the annual contract value by 12. A customer who pays $2,400/year contributes $200/month to MRR. Do not book the full amount in the month of sale, that creates a misleading spike.

Usage-based pricing: Use the contracted monthly minimum as the MRR figure. If a customer commits to $500/month and consistently uses $800, the conservative approach books $500 as MRR and tracks the $300 overage separately. Some companies use a trailing three-month average of actual usage instead, which is acceptable as long as the methodology is consistent.

Freemium: Free users contribute $0 to MRR. Only count them when they convert to a paid plan. Including free users in subscriber counts while computing ARPA artificially deflates your per-account revenue.

Discounted plans: Record MRR at the price the customer actually pays, not the list price. If a customer gets a 25% discount on a $200/month plan, their MRR contribution is $150. Measure growth efficiency using the SaaS Quick Ratio Calculator.

Common MRR Mistakes

1. Counting one-time revenue as recurring. Setup fees, implementation charges, and consulting revenue are not MRR. Including them inflates your figure and creates a false sense of growth. When an investor or acquirer audits your books, one-time revenue mixed into MRR is a red flag that erodes trust.

2. Not normalising annual contracts. Booking a $12,000 annual deal as $12,000 in January MRR makes January look spectacular and the following eleven months look flat. Spread it to $1,000/month. This is standard practice and required for accurate trend analysis.

3. Lumping contraction into churn. A customer who downgrades from $500/month to $200/month is not the same as a customer who cancels. Contraction signals dissatisfaction that you can still recover from; churn means the customer is gone. Tracking them separately helps you prioritize retention efforts correctly.

4. Ignoring reactivation MRR. When a previously churned customer returns, many teams count that as "new" MRR. Strictly, it should be tracked as reactivation MRR, a fifth category. Miscategorising it inflates your new customer acquisition metrics and masks the fact that your top-of-funnel may be weakening.

MRR vs ARR: When to Use Which

ARR (Annual Recurring Revenue) is simply MRR × 12. They measure the same underlying revenue stream at different time scales, but the context for each matters.

Use MRR when: you need to track month-over-month trends, identify seasonal patterns, measure the impact of a pricing change, or you are below approximately $1M in annualised revenue. MRR is the operating metric, it is what your team should review in weekly and monthly meetings.

Use ARR when: you are communicating with investors, comparing your company to publicly traded SaaS businesses, planning annual budgets, or your annualised revenue exceeds $1M. ARR is the strategic metric, it frames your business at the scale investors think in.

A common mistake is computing ARR by summing the last 12 months of actual revenue. That gives you trailing twelve-month revenue (TTM), not ARR. ARR is a forward-looking projection based on this month's MRR, not a backward-looking sum. The distinction matters when your growth rate is changing. For context on how burn rate interacts with these metrics, see our burn rate guide.

For SaaS Companies: Why Metric Transparency Converts

SaaS analytics platforms, billing tools, and CFO dashboards are increasingly embedding interactive MRR calculators and benchmark comparisons on their marketing sites. The reasoning is straightforward: a founder who benchmarks their MRR growth against stage-specific data is revealing their revenue, churn rate, and growth trajectory. That is a highly qualified lead, someone who takes data seriously and is likely evaluating paid tooling.

CalcStack customers in the SaaS analytics space report that interactive metric tools convert visitors to signups at roughly 2-3× the rate of static content pages. The mechanism is simple: when someone inputs their own numbers, they engage more deeply and see the tool's value before any sales conversation. If you sell to SaaS founders, offering a free MRR or SaaS metrics dashboard is one of the most efficient top-of-funnel strategies available.