Monthly Recurring Revenue (MRR)
The predictable, normalized monthly revenue from all active subscriptions. The heartbeat metric of every SaaS business, calculated by summing all monthly subscription values.
MRR Is the Pulse of Your SaaS Business
If you only track one number, track MRR. It tells you how much predictable revenue your business generates every month. Unlike GAAP revenue, MRR strips out the noise — no one-time fees, no services revenue, no accounting adjustments. Just pure, recurring subscription value.
The Five Components of MRR
Every month, your MRR changes through five forces:
- New MRR — Revenue from brand-new customers
- Expansion MRR — Revenue growth from existing customers
- Reactivation MRR — Revenue from customers who return
- Contraction MRR — Revenue lost from downgrades
- Churned MRR — Revenue lost from cancellations
Track each one independently. They tell you completely different stories about your business.
MRR Waterfall
The MRR waterfall is the most useful chart in your board deck. It shows starting MRR, adds new and expansion, subtracts contraction and churn, and lands on ending MRR. If expansion consistently exceeds churn, you have a compounding business. If churn consistently exceeds expansion, you are on a treadmill.
Common MRR Mistakes
Do not include one-time setup fees. Do not include professional services. Do not annualize a monthly number and call it ARR without proper normalization. And do not count free trial users in MRR — they have not converted yet. Clean MRR tracking is the foundation of honest SaaS metrics.
Frequently Asked Questions
How do you calculate MRR?
Sum all active subscription revenue normalized to monthly amounts. Annual contracts get divided by 12. Quarterly contracts divided by 3. One-time fees, setup fees, and professional services revenue are excluded. If you have 100 customers paying $500/mo and 50 on annual plans at $12,000/year, your MRR is (100 x $500) + (50 x $1,000) = $100,000.
What is the difference between MRR and revenue?
MRR only counts recurring subscription revenue, normalized monthly. Revenue (GAAP) includes one-time fees, services, setup charges, and recognizes annual contracts on a monthly basis. MRR is an operating metric that shows your run rate. Revenue is an accounting metric that shows what you earned.
What are the components of MRR?
Five components: New MRR (from new customers), Expansion MRR (upgrades and add-ons from existing), Reactivation MRR (returning customers), Contraction MRR (downgrades), and Churned MRR (cancellations). Net New MRR = New + Expansion + Reactivation - Contraction - Churned.
