What is Monthly Recurring Revenue (MRR)?
Monthly Recurring Revenue (MRR) is the predictable subscription revenue a SaaS business expects to earn each month. It excludes one-time fees, professional services, and variable usage. MRR is the foundational metric for tracking SaaS growth velocity at a fine-grained pace.
Formula
MRR = Σ (Monthly subscription value of active customers)
Annual contracts: divide by 12. Three-year deals at $36k: $1k MRR. Usage-based pricing requires a normalization choice — typically smooth over rolling 3 months.
MRR movement (the waterfall)
- New MRR: Net additions from new customers
- Expansion MRR: Upgrades, seat adds, cross-sell from existing
- Reactivation MRR: Previously churned customers returning
- Contraction MRR: Downgrades, seat reductions
- Churned MRR: Full cancellations
- Net New MRR = New + Expansion + Reactivation − Contraction − Churned
MRR to ARR
ARR = MRR × 12. Useful for board reporting and investor comparisons. MRR is preferred for operational tracking.
Common MRR pitfalls
- Including one-time setup fees inflates MRR artificially
- Counting trial signups before they pay
- Not normalizing annual contracts (counting $12k annual as $12k MRR vs the correct $1k)
- Excluding contraction from “net new MRR” disclosure
Practical implications for founders
Maintain a single source of truth — connect Stripe + your billing tool to an MRR dashboard (ChartMogul, Baremetrics, ProfitWell). Track new vs expansion vs churn ratio: healthy SaaS shows 30%+ from expansion at Series B+. In investor due diligence, MRR cohort waterfalls are scrutinized.
MRR definitions that survive an audit
MRR is a management metric with no GAAP definition, which is exactly why documents that borrow it must define it: recurring subscription value only (one-off services, setup fees and usage spikes excluded or normalised), committed versus invoiced, treatment of discounts, free months and annual-prepay amortisation. Diligence reconciles claimed MRR to billing-system exports and to recognised revenue — gaps between “MRR” and revenue tell the story of aggressive counting. Where MRR anchors covenants, earn-outs or bonus plans, attach the calculation as a schedule with worked examples. And the disclosure note for fundraising materials: an MRR figure that quietly includes non-recurring items is the kind of optimism that reads as misrepresentation after closing.