What is MRR (Monthly Recurring Revenue)?
The predictable, normalised revenue generated from active subscriptions each calendar month, the primary growth signal for subscription businesses.
Monthly Recurring Revenue (MRR) is the normalised, predictable revenue generated from all active subscriptions in a given calendar month. It is the primary health metric for any subscription business because it strips out one-time payments and professional services fees to reveal the true recurring engine. MRR is calculated as the sum of all active subscription values normalised to a monthly figure.
Formula
MRR = Number of Active Customers x Average Revenue Per Account (ARPA)Annual subscriptions are divided by 12 to get the monthly contribution. MRR has four components: New MRR (from new customers), Expansion MRR (upsell/cross-sell), Contraction MRR (downgrades), and Churned MRR (cancellations). Net New MRR = New + Expansion - Contraction - Churned.
Industry Benchmarks
- $1M ARR ($83K MRR) is a common early milestone for Series A readiness
- Growth-stage SaaS targets 10-20% month-over-month MRR growth
- Net MRR Retention above 100% (negative churn) is world-class
- Expansion MRR covering 30%+ of churned MRR indicates strong product-led growth
- Top-quartile SaaS companies reach $1M ARR in 18-24 months
When to Use MRR
- Tracking monthly growth velocity and identifying acceleration or deceleration
- Decomposing growth into acquisition, expansion, and retention components
- Forecasting revenue and runway for board and investor reporting
- Setting quarterly revenue targets and monitoring progress weekly
- Including one-time professional services or setup fees in MRR, which overstates recurring revenue
- Not breaking MRR into its components (new, expansion, contraction, churned) and losing diagnostic insight
- Counting annual contract value in the month signed instead of normalising to monthly
- Track MRR movements daily during month-end to catch unexpected churn spikes before they compound
- Aim for Expansion MRR to exceed Churned MRR - this is the definition of negative revenue churn
- Cohort MRR retention charts are more revealing than blended churn rate for identifying which customer segments retain best
Related Terms
Free MRR Calculator
Skip the spreadsheet. Enter your numbers in the free MRR/ARR Calculator and get a benchmarked MRR result in seconds.