What is MRR?

Monthly Recurring Revenue (MRR) is a standard way to measure how much money a business expects to make from active customers' subscriptions each month.

It turns all recurring subscription fees into a monthly amount that stays the same, no matter how often you bill, how long your contract is, whether you upgrade or downgrade, or whether you get a discount.

One-time fees, charges based on usage that aren't guaranteed by a contract, trials, and services that don't happen again are not included.

How do I calculate MRR?

Monthly Recurring Revenue (MRR) is calculated by normalizing all active recurring subscription revenue into a monthly amount. The goal is consistency, not accounting precision.

Monthly Recurring Revenue (MRR) Formula

Number of active paying customers × Average monthly revenue per customer (ARPU)

= MRR

Only predictable, recurring subscription revenue should be included. One-time fees, setup charges, trials, and non-recurring services are excluded.

MRR Example (Customer-Based Method)

Active paying customers: 50
Average monthly subscription price (ARPU): $80

MRR = 50 × $80 = $4,000

This customer-based (ARPU) method works best when pricing is simple and relatively uniform across customers. For more complex pricing models, MRR is typically calculated by summing subscription revenue at the line-item level.

There are other formulas to help you calculate more precise data depending on your needs, for example if your customes have different plans or billing intervals.

Subscription-Normalized MRR Formula

Σ (Contract value ÷ Number of months in contract term)

= MRR

This method calculates MRR at the contract level, normalizing different billing intervals to a monthly basis before summing.

Subscription-Normalized MRR Example

Customer A: $120 per month → $120 MRR
Customer B: $1,200 annual plan → $1,200 ÷ 12 = $100 MRR
Customer C: $600 semi-annual plan → $600 ÷ 6 = $100 MRR

MRR = $120 + $100 + $100 = $320

By normalizing each contract to a monthly value, this approach avoids overstating revenue and preserves comparability across customers with different plans or billing intervals.

Let’s take a look at a list of products that were purchased from a customer and calculate ARR:

Real-life MRR use cases

Let’s look at a few examples on how to calculate MRR in different cases.

1. One year contract

For a one year contract with no expansion or contraction, MRR would equal the revenue from that customer for the month. If we have a customer that bought a subscription for $800 MRR in January, we can represent the MRR in the following way:

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
MRR	$800	$800	$800	$800	$800	$800	$800	$800	$800	$800	$800	$800

In each month, we expect $800 of monthly recurring revenue. Similarly, we could also describe this as $9,600 ARR ($800 MRR per month x 12 months = $9,600 ARR).

2. Expansion and contraction

If there is expansion or contraction, MRR reflects the revenue that would be received if the most recent version of the contract continues for another month. Let’s start with the same customer from above but add in an MRR downsell in March and an MRR upsell in July.

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Starting MRR	$800	$800	$800	$600	$600	$600	$600	$1,200	$1,200	$1,200	$1,200	$1,200
MRR Change	—	—	-$200	—	—	—	+$600	—	—	—	—	—
Ending MRR	$800	$800	$800	$600	$600	$600	$600	$1,200	$1,200	$1,200	$1,200	$1,200

With the $200 MRR downsell in March, the MRR decreased to $600. With the $600 MRR upsell in July, the MRR increased to $1,200. In both cases, MRR is the forward-looking expectation of revenue for the next month, and always reflects the most recent contract.

3. Net New MRR

MRR can change month over month, and the formulas we've seen so far fail to account for that. In taht case we want to use the Net New MRR formula.

Net New MRR Formula (Monthly)

New MRR + Expansion MRR + Reactivation MRR − Contraction MRR − Churned MRR

= Net New MRR

Net New MRR Example

New MRR: $1,200
Expansion MRR: $400
Reactivation MRR: $100
Contraction MRR: −$250
Churned MRR: −$600

Net New MRR = $1,200 + $400 + $100 − $250 − $600 = $850

Net New MRR shows whether recurring revenue increased or decreased during the month and clearly attributes the change to acquisition, expansion, reactivation, contraction, or churn.

When should I use MRR instead of ARR?

For organizations with subscriptions that are month-to-month, MRR is generally more appropriate to describe the total monthly revenue expectation for a particular customer. For longer contracts, ARR might be more appropriate to see the total annual revenue expectation. Keep in mind that ARR is not always 12 times MRR, and can be different due to variable pricing, non-annual contracts, discounts, and prepayments.

How much MRR should I have?

While ARR benchmarks vary by industry and company age, there are some general targets for MRR and growth rates to consider. The table below details some benchmarks for MRR, YoY (Year over Year) Growth, and CMGR (Compound Monthly Growth Rate):