GlossaryGrowth & analytics
What is MRR (monthly recurring revenue)?
Also called: MRR, monthly recurring revenue
Definition
Monthly recurring revenue (MRR) is the normalized amount of subscription revenue a business expects to receive every month from its active customers, excluding one-time fees and usage that isn't committed.
Monthly recurring revenue (MRR), explained
MRR is the heartbeat metric of a subscription business. Add up the monthly value of every active subscription. Annual plans count at one twelfth of their annual price per month. Discounts reduce it. One-time setup fees, services, and non-recurring charges stay out.
The useful view is MRR movement, broken into components each month: new MRR from new customers, expansion MRR from upgrades and added seats, contraction MRR from downgrades, churned MRR from cancellations, and sometimes reactivation MRR from returning customers. Net new MRR is new plus expansion plus reactivation, minus contraction and churn. That breakdown shows whether growth is coming from acquisition, from existing customers, or being eaten by churn.
Common mistakes inflate it. Counting a full annual payment as one month's MRR. Including trials that haven't converted. Counting usage-based spikes as if they'll recur. Leaving in customers whose payments have failed for weeks. Each makes the number look better right up until it doesn't.
For founders sharing numbers publicly, as many do when building in public, precision matters. State whether you mean MRR or revenue collected, and whether it's gross or net of fees. Readers compare numbers across companies, and mismatched definitions mislead them.
MRR is also the base for other metrics: annual recurring revenue (ARR) is usually MRR times twelve, and CAC payback, LTV and churn all build on it. Getting the definition right once saves arguments later.
Why it matters for founders
MRR and its movements show whether a subscription business is actually growing and why. A cleanly defined MRR is the basis for pricing, hiring and fundraising decisions.
Example
A startup has 120 monthly customers at $30 and 20 annual customers at $300 a year. MRR is 120 × 30 + 20 × 25 = $4,100, not $9,600, because each annual plan counts as $25 a month.
Common mistakes
- Counting annual payments as a single month's MRR.
- Including unconverted trials or one-time fees.
- Reporting only total MRR without new, expansion and churned components.
Related terms
- Annual recurring revenue (ARR)Annual recurring revenue (ARR) is the yearly value of a company's recurring subscription contracts, commonly calculated as current MRR multiplied by twelve. It's a snapshot of today's recurring revenue, annualized, not last year's actual revenue.
- Churn rateChurn rate is the percentage of customers, or of recurring revenue, lost during a period. Monthly customer churn is customers who cancelled this month divided by customers you had at the start of the month.
- Customer lifetime value (LTV)Customer lifetime value (LTV) is an estimate of the total gross profit a business will earn from a typical customer over the whole time they stay a customer. It's compared with CAC to judge whether acquisition is worth it.
- CAC payback periodCAC payback period is the number of months it takes for a new customer's gross profit to repay the cost of acquiring them. Shorter payback means cash comes back sooner to fund more growth.