What is Monthly Recurring Revenue (MRR)?

Monthly Recurring Revenue (MRR) is a metric that represents the predictable and recurring revenue a company expects to earn each month from active subscriptions or contracts. It is commonly used by SaaS (Software as a Service) and other subscription-based businesses to track growth, forecast future earnings, and measure overall financial health.

MRR includes revenue from new customers, renewals, and expansions (such as upsells), excluding one-time payments, setup fees, or non-recurring charges. It provides a consistent, standardized way to evaluate the revenue impact of customer acquisition and retention over time.

For example, if you have 10 customers each paying $1,000 monthly, your MRR is $10,000. If one customer upgrades to a $1,500 plan, your monthly recurring revenue (MRR) increases accordingly. If another customer churns, MRR decreases by the amount they were paying.

MRR is especially valuable for early-stage and scaling companies because it offers real-time visibility into revenue momentum and customer behavior. Monitoring MRR helps leaders make informed decisions about budgeting, hiring, and investor reporting by focusing on stable and repeatable revenue streams.

Monthly Recurring Revenue Formula

The formula for calculating Monthly Recurring Revenue (MRR) is straightforward:

MRR = Total Number of Customers × Average Revenue Per User (ARPU)

This formula gives you a snapshot of your predictable monthly income based on active subscriptions or recurring contracts. For example, if you have 100 customers and your average revenue per user (ARPU) is $200, your monthly recurring revenue (MRR) would be $20,000.

This metric helps companies track revenue growth, forecast future earnings, and evaluate the impact of changes in pricing, churn, or acquisition. Many businesses also calculate different segments of MRR, such as new, expansion, or churned MRR, to gain a more detailed view of revenue dynamics.

Types of MRR to Track

Tracking different types of MRR helps businesses understand what’s driving revenue growth or decline.

The main types include:

• New MRR: Revenue added from brand-new customers in a given month.
• Expansion MRR: Additional revenue from existing customers through upgrades, add-ons, or upsells.
• Contraction MRR: Lost revenue due to downgrades, discounts, or reduced usage.
• Churned MRR: Revenue lost when customers cancel or do not renew.

By breaking MRR into these categories, companies can identify what’s working in their customer lifecycle and where improvements are needed: acquisition, upselling, or retention.

MRR vs. ARR: What’s the Difference?

The main difference between Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) is the time frame used to measure recurring income.

• MRR tracks monthly revenue and is typically used for short-term planning, operational tracking, and rapid iteration in early-stage or high-growth companies.
• ARR represents the total recurring revenue generated in a 12-month period and is commonly used for long-term planning, investor reporting, and strategic forecasting.

To calculate ARR, multiply MRR by 12. For example, if your monthly recurring revenue (MRR) is $50,000, your annual recurring revenue (ARR) is $600,000.

Both metrics are valuable. MRR gives fast feedback on performance trends, while ARR helps assess overall business scale and growth potential. Most SaaS and subscription businesses track both to stay agile while keeping a long-term view.