SaaS EconomicsMRR

What is MRR (Monthly Recurring Revenue)?

Monthly Recurring Revenue (MRR) is subscription revenue normalized to a monthly amount. Add the monthly values of active subscriptions and exclude one-time payments and professional services fees. This separates recurring revenue from other income.

Formula

MRR = Number of Active Customers x Average Revenue Per Account (ARPA)

Annual subscriptions are divided by 12 to get the monthly contribution. Common MRR movements include: New MRR (from new customers), Expansion MRR (upsell/cross-sell), Contraction MRR (downgrades), and Churned MRR (cancellations). Net New MRR = New + Expansion - Contraction - Churned.

Benchmarks and interpretation

  • SaaS Capital's Q1 2025 survey of more than 1,000 private B2B SaaS companies reported median 2024 year-over-year growth of 40% below $1M ARR, 28% at $1M-$3M, 24% at $3M-$10M, and 20% above $10M
  • The same SaaS Capital dataset reported a 25% all-company median; it is a 2024 result, not a 2026 target
  • Net MRR retention above 100% means expansion exceeds revenue lost to contraction and churn
  • Compare growth over consistent periods and with a similar company type and ARR band

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
Common mistakes
  • 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
Practical tips
  • Track MRR movements daily during month-end to catch unexpected churn spikes before they compound
  • Negative net revenue churn means Expansion MRR exceeds revenue lost to both churn and contraction
  • Cohort MRR retention charts are more revealing than blended churn rate for identifying which customer segments retain best

Related terms

ARR- Annual Recurring RevenueChurn RateLTV- Customer Lifetime ValueCAC- Customer Acquisition Cost

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