What is MRR?

MRR (Monthly Recurring Revenue) is the sum of normalized monthly subscription charges from all active customers in a given month. It is the core metric of SaaS companies and of any subscription business, because it tells you how much revenue is already under contract for next month before a single new customer signs up.

MRR is an operating metric, not an accounting one. It does not replace revenue on the income statement or cash in the bank. It answers a different question: how fast is the recurring part of the business growing, and where is that growth coming from?

What counts toward MRR

The rule is simple: MRR includes only what a customer pays on a regular basis for access to the service, expressed as one month.

Annual and quarterly contracts are normalized to a month. A customer who prepays $12,000 for a year contributes $1,000 of MRR in each of the twelve months, not $12,000 in the month the invoice is paid.
Discounts are counted at the amount actually paid. If the list price is $500 and the customer has a 20% discount, their MRR is $400.
One-off fees stay out — onboarding, training, data migration and project-based services.
Sales tax and VAT stay out. Use net amounts only.
Trials and free plans contribute $0, no matter how many users they have.
A signed contract that is not live yet enters MRR only from the month the service actually starts. Many teams track these deals separately as committed but not yet recurring.
Usage-based charges are handled differently from company to company. The common approach is to include only the committed minimum and report overage separately. Applying one rule consistently matters more than which rule you pick.

MRR movements

The month-over-month change in MRR is broken into components, because the total alone hides what actually happened:

New MRR — revenue from customers acquired this month
Expansion MRR — growth from existing customers (a higher plan, more seats, add-on modules)
Contraction MRR — lost revenue from customers who stay but pay less
Churned MRR — revenue lost from customers who canceled
Reactivation MRR — customers who left earlier and came back (optional to track separately)

Net New MRR = New + Expansion + Reactivation − Contraction − Churned

A worked example

The figures are illustrative. A company starts the month at $50,000 MRR. It signs new customers worth $4,000, existing customers upgrade by $1,500, some of them downgrade by $700, and cancellations take away $2,300.

Net New MRR = 4,000 + 1,500 − 700 − 2,300 = $2,500
Ending MRR = 50,000 + 2,500 = $52,500
ARR = 52,500 × 12 = $630,000

The same ending figure could come from $10,000 of new business against $7,500 of churn, with no movement among the remaining customers. That is a very different company, which is why a good MRR report shows the movements, not just the total.

Metrics derived from MRR

ARR (Annual Recurring Revenue) = MRR × 12. The same quantity on a yearly scale, convenient when most contracts are annual.
ARPA / ARPU = MRR ÷ active accounts (or users). With 210 accounts in the example, ARPA is 52,500 ÷ 210 = $250.
Logo churn vs. revenue churn. Logo churn counts customers who leave; revenue churn counts the money they took with them. Five cancellations out of two hundred accounts is always 2.5% logo churn, but the revenue impact depends on whether the smallest or the largest customers left.
Net revenue retention (NRR) and gross revenue retention (GRR) are measured on the same cohort: customers who were active at the start of the period, with new customers excluded. NRR = (starting MRR + Expansion − Contraction − Churned) ÷ starting MRR; GRR is the same formula without Expansion. In the example, monthly NRR is 48,500 ÷ 50,000 = 97% and GRR is 47,000 ÷ 50,000 = 94%. NRR above 100% means existing customers are growing faster than the business is losing revenue to downgrades and cancellations.
CAC payback in months = CAC ÷ (ARPA × gross margin). With a CAC of $2,000, ARPA of $250 and an 80% gross margin, payback is 2,000 ÷ 200 = 10 months.

MRR vs. recognized revenue vs. cash

An annual prepayment is cash in the bank on day one, revenue recognized over time under the applicable accounting rules, and twelve equal parts in MRR. All three numbers are correct; they simply answer different questions. Trouble starts when one report mixes them and a strong cash month gets read as growth in recurring revenue.

Common mistakes

Counting an annual prepayment in full in the month it was received.
Adding one-off onboarding or training fees.
Counting accounts on a trial or a free plan.
Including signed contracts that have not gone live.
Summing revenue in several currencies without a fixed conversion rate.
Changing the definition mid-year, after which comparisons with earlier months stop meaning anything.

MRR in SaaS marketing and SEO

In a SaaS company the organic channel is judged by impressions, clicks and sign-ups. MRR adds the next layer: how many of those sign-ups convert to a paid plan and how much recurring revenue they bring. Joining Search Console and analytics data with billing data shows which topics attract future customers, not only traffic. We describe how to measure the organic channel from sign-up upward on our SEO for SaaS page and in the articles on SEO for SaaS and how to calculate SEO ROI.

Related terms

Churn rate — the cancellation rate that shows up in MRR as Churned MRR
LTV — customer lifetime value, calculated from ARPA and churn among other inputs
CAC — customer acquisition cost, set against ARPA in the payback period
SaaS SEO — search optimization for subscription software
KPI — MRR is one of the headline KPIs of a SaaS company
ROI — return on investment, which in SaaS is often measured on MRR growth
Conversion rate — the step between a free sign-up and a paying account

MRR