Monthly Recurring Revenue (MRR)

Also known as: MRRMonthly RevenueRecurring RevenueARRAnnual Recurring Revenue

MRR = Number of Subscribers × Average Revenue Per Account

💡The Concept

MRR is the predictable, recurring revenue your business earns every month from subscriptions. It's the heartbeat of any SaaS company. MRR is broken into 5 components: New MRR (from new customers), Expansion MRR (upgrades), Reactivation MRR (returning customers), Contraction MRR (downgrades), and Churned MRR (cancellations). Net New MRR = New + Expansion + Reactivation − Contraction − Churn. ARR = MRR × 12. VCs use MRR growth rate as the primary metric to evaluate SaaS companies — a 15%+ month-over-month growth rate signals a company worth investing in.

⚠️The Trap

The trap is inflating MRR by including non-recurring revenue. Annual contracts should be divided by 12 (not counted as one month). One-time setup fees, professional services revenue, and implementation charges are NOT MRR. Including them makes your business look recurring when it's actually project-based. If your MRR chart has spikes instead of a smooth upward curve, you're probably counting non-recurring revenue.

🎯The Action

Calculate Net New MRR every month using all 5 components: Net New MRR = New MRR + Expansion MRR + Reactivation MRR − Contraction MRR − Churned MRR. Track each component separately because they tell different stories. If Churned MRR is growing even while New MRR is growing faster, you have a leaky bucket that will catch up to you. The best SaaS companies have Net Revenue Retention > 120%, meaning Expansion MRR alone exceeds Churned + Contraction.

⚡Pro Tips

Track MRR by cohort: does each monthly cohort maintain or grow its MRR over time? If January's cohort started at $10K MRR and is now at $12K MRR, you have positive net dollar retention — the holy grail of SaaS.

MRR growth rate matters more than absolute MRR at early stages. A company going from $10K to $15K MRR (50% growth) is more impressive than a company going from $500K to $520K (4% growth), even though the latter added more absolute dollars.

Committed Monthly Recurring Revenue (CMRR) includes signed contracts that haven't started billing yet. This is especially useful for sales-led SaaS where bookings precede activation by weeks or months.

🚫Common Myths

✗Myth: “ARR is just MRR × 12”

✓Reality: True ARR accounts for known future changes: signed annual contracts expiring, committed expansions, and announced churns. Simple MRR × 12 assumes today's state persists — it doesn't. A company with $100K MRR but 3 enterprise customers planning to churn next quarter has much less than $1.2M ARR.

✗Myth: “Higher MRR always means a healthier business”

✓Reality: MRR without unit economics is meaningless. If you're spending $3 to acquire every $1 of MRR and it takes 18 months to recoup, you're destroying value as you grow. The best SaaS metric is MRR × Gross Margin — how much recurring PROFIT you generate.