MRR (Monthly Recurring Revenue)

Monthly Recurring Revenue (MRR) is the predictable monthly income generated from subscription customers. MRR is the most important metric for SaaS companies and subscription businesses, providing real-time visibility into business growth and health. It excludes one-time payments, professional services, and variable usage fees that may fluctuate month to month.

MRR is calculated using the formula:

MRR = Number of Monthly Subscribers × Average Revenue Per User (ARPU)

For example, if a SaaS company has 500 subscribers paying an average of $100 per month, their MRR is $50,000.

MRR components include:

New MRR: Revenue from newly acquired customers Expansion MRR: Additional revenue from existing customers (upgrades, add-ons) Contraction MRR: Lost revenue from existing customers (downgrades)
Churned MRR: Revenue lost from cancelled customers

Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR

MRR calculation considerations:

• Annual Contracts: Divide annual contract value by 12 months
• Free Trials: Only count paying customers, not trial users
• Discounts: Use actual monthly payment amounts after discounts
• Multiple Products: Sum MRR across all subscription offerings

MRR is essential for subscription businesses because it enables:

1. Growth Tracking: Month-over-month growth rates show business momentum
2. Revenue Forecasting: Predictable revenue helps with planning and cash flow management
3. Performance Benchmarking: Industry-standard metric for comparing SaaS companies
4. Investor Communication: Key metric for fundraising and board reporting

Key MRR metrics include:

MRR Growth Rate: Month-over-month percentage increase (healthy SaaS companies target 10-20% monthly) MRR Churn Rate: Percentage of MRR lost each month from cancellations Expansion MRR Rate: Revenue growth from existing customers Customer Concentration: Percentage of MRR from largest customers

MRR directly impacts other critical metrics:

• Annual Recurring Revenue (ARR): ARR = MRR × 12
• Customer Lifetime Value (LTV): Higher MRR per customer increases LTV
• Unit Economics: MRR must exceed Customer Acquisition Cost (CAC) within reasonable payback periods
• Burn Rate: Growing MRR reduces net burn and extends Runway

For early-stage SaaS companies, achieving $10,000 MRR often represents product-market fit, while $100,000 MRR typically indicates scalable business potential. E-commerce subscription services, membership platforms, and recurring service businesses use MRR to track subscription revenue separate from one-time purchases.

Consistent MRR growth with low churn creates compounding effects, making MRR the foundation for sustainable SaaS business success.