What Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the total recurring value of active subscriptions in a single month. It measures predictable, repeatable revenue on a monthly basis and is typically more appropriate than ARR for businesses that primarily offer monthly subscription plans.
|
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.
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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.
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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.
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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):
| Funding Round |
MRR |
YoY Growth |
CMGR |
| Series A |
$100K+ |
3x |
10% |
| Series B |
$400K+ |
2.5x |
8% |
| Series C |
$800K+ |
2x |
6% |
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