What is Monthly Recurring Revenue (MRR)?

Monthly recurring revenue (MRR) is the predictable subscription revenue a business earns in a month, normalized so that annual and quarterly plans count as their monthly equivalent and one-time fees are left out.

At a glance

• Formula: MRR per customer = amount paid for the subscription ÷ months in the billing period. Total MRR is the sum across customers.
• A customer on a $12,000 annual plan adds $1,000 of MRR. A $500 monthly plan adds $500.
• Setup fees, professional services, hardware and taxes don’t count. ChartMogul, for one, excludes one-time payments from MRR.
• Multiplying MRR by 12 gives the annualized run rate, which most teams call ARR.
• The useful view isn’t the total but the movements: new, expansion, contraction and churn.

How to calculate MRR

For each active subscription, divide what the customer pays by the number of months the payment covers. Apply discounts the customer actually gets, so a 20% annual discount lowers MRR. Leave out anything that won’t repeat. Then add up all active subscriptions on the last day of the month.

The movements explain the change from one month to the next. New MRR comes from new customers. Expansion MRR comes from existing customers paying more. Contraction comes from downgrades, and churned MRR from cancellations. Net new MRR is new plus expansion minus contraction and churn.

Example (illustrative): you end September at $200,000 of MRR. In October you add $14,000 from new customers and $6,000 from upgrades, lose $3,000 to downgrades and $5,000 to cancellations. Net new MRR is $12,000, and October closes at $212,000.

Why the movements matter more than the total

Two companies can both add $10,000 of net new MRR in a month. One adds $40,000 and loses $30,000; the other adds $15,000 and loses $5,000. The first has a retention problem that more selling will only cover for a while. Reporting the four movements every month shows which one it is.

MRR divided by the number of customers gives ARPA, which shows whether you’re moving up or down market over time.

MRR is not the same as revenue

MRR is an operating number, not an accounting one. Revenue on the income statement includes one-time fees and follows revenue recognition rules, while MRR is a snapshot of what’s recurring right now. Finance and sales should agree which one a given report uses, so nobody compares the two by accident in a board deck.

Common MRR mistakes

• Counting an annual contract as one month’s MRR. A $24,000 annual payment is $2,000 of MRR, not $24,000 in the month it’s paid.
• Including one-time fees. Setup and services revenue inflates MRR and then disappears.
• Counting signed but not live deals. Those belong in contracted ARR, not MRR.
• Different rules every month. Decide how to treat discounts, trials and failed payments once, write it down and keep it.

How MRR shows up in a revenue system

MRR is only as accurate as the billing and CRM data behind it: plan, price, start date and status recorded the same way for every customer. Keeping deal and subscription data consistent, and the revenue reports built on it, is part of the RevOps work we run inside partners’ systems. See how we run RevOps.