Unit Economics
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the predictable subscription revenue a business earns every month, normalized to a monthly figure. It counts only recurring charges, not one-off fees.
Also known as: MRR, monthly recurring revenue
Why it matters
MRR is the heartbeat of a subscription business. It tells you whether you are growing, flat, or shrinking month to month, and it is the first number most SaaS investors ask for. For a founder still validating, MRR is also the cleanest proof of demand there is: people paying you again and again beats any survey. Track new, expansion, contraction, and churned MRR separately so you can see where growth actually comes from.
Formula
MRR = sum of all monthly subscription fees. For annual plans, MRR = annual contract value / 12.
Worked example
40 customers on a $25/month plan and 10 on a $100/month plan: (40 x 25) + (10 x 100) = $2,000 MRR. A $1,200/year plan contributes $100 to MRR.
Common mistakes
- Counting one-time setup or services fees as MRR. Only recurring charges qualify.
- Forgetting to divide annual contracts by 12, which inflates the monthly figure.
- Watching total MRR only. New vs expansion vs churned MRR is where the real story lives.
Frequently asked questions
How do you calculate MRR?
Add up all recurring monthly subscription revenue. For annual plans, divide the annual price by 12. Exclude one-time fees like setup or professional services.
What is the difference between MRR and ARR?
MRR is monthly recurring revenue; ARR is annual recurring revenue, essentially MRR times 12. Companies with monthly plans usually track MRR; those with annual contracts often quote ARR.
What counts toward MRR?
Only predictable, recurring subscription charges. One-time setup fees, professional services, and usage spikes that will not repeat do not count. Including them overstates the health of the business.
What are the components of MRR?
New MRR (new customers), expansion MRR (upgrades), contraction MRR (downgrades), and churned MRR (cancellations). Tracking them separately shows whether growth is real or just masking churn.
What is a good MRR growth rate?
Benchmarks vary, but consistent month-over-month growth matters more than any single number. Many ambitious early SaaS startups aim for high single-digit to double-digit monthly growth. Sustainability beats one big spike.
How is MRR different from total revenue?
Total revenue includes everything you bill, including one-time and irregular income. MRR isolates the predictable recurring portion. MRR is what reveals the underlying trajectory of a subscription business.
Related terms
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Last updated 2026-06-02 · Back to the glossary