Monthly recurring revenue

Monthly recurring revenue (MRR) is crucial for understanding your business’s short-term financial health and customer engagement.

What is MRR?

Monthly recurring revenue (MRR) is the total recurring revenue you earn from customers each month, no matter the length of their contracts.

It’s one of the most critical metrics for SaaS and subscription-based businesses because it helps track product–market fit, measure momentum, and identify the right moments to reinvest in growth.

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Running a startup comes with constant experimentation. Some initiatives will succeed, others may fall flat, and sometimes you’ll need to pivot. Maybe your new CTO inspires innovation across the engineering team. Perhaps a marketing campaign delivers strong ROI—or a product launch underperforms expectations.

With so many moving parts, it’s easy to wish for a GPS that could guide every decision. While no such tool exists, MRR comes close by offering predictability around your revenue stream. That’s why it’s one of the most important metrics your business can track.

Key insights

• Monthly recurring revenue (MRR) is crucial for understanding your business’s short-term financial health and customer engagement
• Tracking MRR helps identify product-market fit and guides investment decisions by providing insights into revenue consistency and customer behavior
• Understanding different types of MRR—like new, expansion, reactivation, contraction, and churned MRR—enhances strategic planning
• Challenges in calculating MRR accurately include handling discounts, billing cycles, and distinguishing one-time fees from recurring revenue

What are the different types of MRR?

To get the most insight from monthly recurring revenue (MRR), it helps to break it down into five key categories:

• New business MRR: Revenue from brand-new customers. Tracking both the dollar amount and number of customers (logos) provides insight into acquisition trends and how the market values your product.
• Expansion MRR: Additional recurring revenue from existing customers through upsells or added products. (One-time purchases don’t count here.)
• Reactivation MRR: Revenue from returning customers who had previously churned.
• Contraction MRR: Lost recurring revenue from customers who downgrade their plans, drop modules, or reduce seats.
• Churned MRR: Revenue lost from cancellations. Tracking both dollars and logos here helps uncover trends and potential reasons for churn.

Why should your business track MRR?

Tracking monthly recurring revenue (MRR) gives you valuable short-term visibility into total revenue and helps reveal momentum across your customer base. While one-time revenue spikes can be exciting, they don’t translate into sustainable growth. MRR highlights the revenue you can rely on month after month.

Here’s why it matters:

• Product–market fit: MRR reflects whether customers are consistently finding value in your product
• Momentum and trajectory: Monitoring changes in MRR shows whether your recurring revenue is growing steadily, stalling, or declining
• Investment decisions: Understanding your MRR helps you know when it’s the right time to reinvest in the business
• Investor confidence: Recurring revenue streams are a strong indicator of long-term profitability and financial health, which investors pay close attention to

MRR is a point-in-time metric. It’s a snapshot of where you stand right now, not the full story. To truly understand your revenue, look at how MRR changes over time—whether through new business, churn, or pricing updates—and share those insights across the company to improve forecasting and decision-making.

The challenges of MRR

Getting MRR right is critical because errors can throw off revenue forecasts, which in turn affects decisions about runway, headcount planning, and growth opportunities. Here are some of the most common challenges to watch out for:

• Overburdened MRR: Remember, the “R” in MRR stands for recurring. One-time purchases—like free trials, late payment fees, or installation charges—don’t belong in your calculation. Including them can overstate growth and misrepresent financial efficiency to leaders and investors.
• Miscalculations with discounts, downgrades, and upsells: Data about discounts or contract changes often lives in different systems, or depends on manual updates. This makes it easy to miscalculate and overstate monthly revenue.
• Misalignment with billing cycles: Subscriptions may be billed monthly, quarterly, or annually. For accurate MRR, payments on longer cycles must be spread evenly across months.
• Running out of resources: Cash inflows and outflows affect how quickly you can reinvest in the business. Tracking MRR alongside CAC and CAC payback period shows when customers begin contributing to growth.
• Undervaluing customers: Customer lifetime value (LTV) reflects the total revenue a customer generates over time. If onboarding, support, or retention efforts slip, MRR-generating customers may churn—reducing both short- and long-term revenue.

By understanding these pitfalls, finance teams can ensure MRR stays an accurate, reliable measure of recurring revenue health.

How to calculate MRR

To calculate monthly recurring revenue (MRR), divide each customer’s total contract value (from recurring revenue) by the number of months in their contract, then sum the results.

Because MRR can be segmented into new, expansion, reactivation, contraction, and churned MRR, you can also calculate each type separately to better understand what’s driving growth or loss.

MRR becomes even more powerful when you extend it into other calculations:

• Annualized MRR (ARR): Multiply your MRR by 12 months to get an annual view of recurring revenue. This is especially useful if your business primarily sells monthly subscriptions.
• ARPU method: Multiply the number of monthly subscribers by your average revenue per user (ARPU) to calculate MRR.

These formulas help you forecast revenue more accurately, track momentum, and build deeper insights into customer and business growth.

MRR vs. ARR: what’s the difference?

At a basic level, the difference between MRR and ARR is simple:

• MRR is your monthly recurring revenue
• ARR is your annual recurring revenue—typically calculated as MRR × 12

Both provide a view of predictable revenue, but they serve different purposes.

• MRR gives a short-term view. It reveals monthly and quarterly trends, which are especially useful for sales and marketing teams. They can use these insights to adjust campaigns, shorten sales cycles, or improve onboarding in response to near-term results.
• ARR provides a long-term view. Annual contracts guarantee revenue over the course of a year (unless there are opt-out clauses), while monthly contracts are easier to cancel. ARR helps illustrate the big picture—making it a better metric for tracking long-term goals and presenting financial health to investors.

In short, MRR helps with day-to-day strategy, while ARR signals long-term predictability and growth. Together, they offer a complete picture of recurring revenue performance.

<<Download the expert-built ARR snowball model for top-line planning.>>

Metrics related to MRR

MRR is a powerful building block for other SaaS business metrics that provide insight into effective planning.

SaaS quick ratio

For early-stage SaaS companies, the SaaS quick ratio measures your MRR growth (your new and expansion MRR) against your MRR losses (any churned and contraction MRR).

If your business model operates under monthly subscriptions/contracts or you want to focus on short-term performance, the SaaS quick ratio provides a quick comparison of top-line vs. bottom-line growth and stability.

Net new MRR

Your net new MRR takes your new and expansion MRRs and subtracts any churn and contraction MRR.

• New MRR + expansion MRR – churn MRR – contraction MRR

Not only is this formula insightful in regards to churn and customer upgrade velocity, but it can help forecast the company’s financial health. Would revenue continue to drop in six months or would it remain constant due to new and expansion MRR?

Net revenue retention (NRR)

To understand the company’s growth rate and trajectory, you need to have a sense of customer retention. Net revenue retention (NRR) divides the current MRR for a customer cohort by the MRR in the previous month. It accounts for changes in MRR, which indicates where you may be gaining or losing revenue overall.

Gross revenue retention (GRR)

GRR is a more conservative financial metric than NRR in terms of understanding revenue retention. GRR doesn’t factor in any expansion MRR, and cannot exceed 12 months. Instead, it focuses on churn and downgrades and provides insight into how well the company retains revenue from existing customers, which is an important indicator in terms of customer satisfaction.

Understanding your MRR data and 4 ways to improve it

MRR gives you the micro-level insights needed to understand whether your company is on track for sustainable revenue growth. Recurring revenue also helps you plan for operational efficiency and serves as a reality check for product–market fit.

Improving MRR starts with understanding the why behind the numbers. Sales may secure contracts, but marketing builds the pipeline that fuels those deals, and customer success works to retain and expand accounts. To make progress, MRR data should be shared in ways that connect directly to each team’s responsibilities and growth goals.

1. Focus on matching ideal customer profiles (ICPs)

Marketing plays a central role in attracting new business, which makes new MRR a key focus. To bring in the right customers, marketing needs to understand what truly attracts them and ensure as close a product–market fit as possible.

If churned MRR shows certain channels are bringing in customers who don’t stick, marketing can pivot to more effective acquisition strategies. Sales also needs to revisit ICPs regularly to confirm that expectations align with what the product delivers.

2. Update your pricing strategy

Pricing directly reflects your product–market fit. Are potential customers turning away because of cost, or do they see the value? Are your prices competitive within the industry?

Sales can help gauge satisfaction by tracking interest in upsells and cross-sells. In some cases, adjusting pricing—whether increasing prices for higher value or shortening free trial periods to drive faster conversions—can lead to stronger cash flow, shorter CAC payback periods, and a faster path to profitability.

3. Expand your revenue streams

Expansion revenue is a strong signal that customers find ongoing value in your product. Successful upsells, cross-sells, or feature add-ons not only increase MRR but also show enthusiasm and loyalty among your customer base.

4. Reduce churn

MRR grows fastest when churn is low. While churn can’t be eliminated entirely, it can be reduced through cross-functional collaboration.

• Finance can run cohort analyses to identify when and why churn is happening.
• Sales and customer success can examine whether onboarding needs improvement.
• Product teams can use customer feedback to prioritize updates and improvements.

By addressing churn at multiple levels, you strengthen retention, improve customer satisfaction, and protect your recurring revenue base.

Monthly recurring revenue FAQs

What is a good MRR growth rate in SaaS?

There isn’t a one-size-fits-all answer—your ideal growth rate depends on factors like starting MRR, industry, and company goals. That said, a popular benchmark from SaaS leader Jason Lemkin suggests that once a startup reaches $1M ARR, aiming for 10+ percent month-over-month MRR growth is an excellent target.

How is MRR different from ARR?

MRR and ARR are calculated in the same way, but over different timeframes. ARR is simply your MRR multiplied by 12, giving you an annualized view of recurring revenue.

Should I use ARR or MRR for my SaaS metrics?

It depends on your pricing model. If most of your customers pay monthly, MRR is the better metric to track. If you primarily sell annual contracts, ARR will give you a clearer picture of recurring revenue.

What is ARPU?

ARPU stands for average revenue per user. It’s a key metric in SaaS finance that helps you:

• Maximize profit by analyzing customer counts and setting subscription targets
• Reduce losses by spotting churn and revenue drains
• Prepare for scale by forecasting growth opportunities