What is MRR (Monthly Recurring Revenue)? (Definition + SaaS example)
Monthly Recurring Revenue (MRR) is the predictable revenue a SaaS company earns each month from active subscriptions. MRR normalizes different billing periods โ annual, quarterly, and monthly โ into one consistent monthly figure, making it the foundational metric for SaaS financial planning.
Formula and Calculation
Basic MRR
MRR = Number of Customers ร Average Revenue Per Customer (Monthly)
For companies with mixed billing periods:
Mixed Billing MRR
MRR = ฮฃ (Monthly value of each active subscription)
MRR Components Breakdown
Net New MRR
Net New MRR = New MRR + Expansion MRR + Reactivation MRR โ Contraction MRR โ Churned MRR
Worked SaaS Example
A SaaS company has the following customer base at the start of March:
| Segment | Customers | Monthly Value Each | MRR Contribution |
|---|---|---|---|
| Starter plan (monthly) | 80 | $49 | $3,920 |
| Growth plan (monthly) | 45 | $199 | $8,955 |
| Enterprise (annual @ $24,000) | 12 | $2,000 | $24,000 |
| Total | 137 | $36,875 |
During March, the company adds 8 new customers ($1,200 New MRR), upgrades 3 ($450 Expansion MRR), and loses 2 ($398 Churned MRR).
End-of-March MRR = $36,875 + $1,200 + $450 โ $398 = $38,127
MRR vs ARR
Both metrics represent the same underlying recurring revenue โ ARR is simply MRR annualized. Early-stage companies tend to focus on MRR because monthly growth rates are more meaningful at smaller scale.
Why MRR Matters for SaaS
Finance teams care about MRR because it is the clearest indicator of subscription business health. A consistently growing MRR means the company is acquiring customers faster than it is losing them, and the average contract value is stable or increasing.
In investor reporting, MRR growth rate is often the first metric discussed. A SaaS company growing MRR at 15%+ month-over-month in early stage, or 3-5% month-over-month at scale, signals strong product-market fit and go-to-market efficiency.
A common mistake is including one-time revenue in MRR. Setup fees, migration charges, and consulting hours inflate MRR and give a misleading picture of recurring revenue. Always separate these into a non-recurring revenue line item.
MRR connects directly to ARR through simple multiplication, and to NRR through the expansion and contraction components. Tracking MRR components separately reveals whether growth is coming from new customers, upsells, or reduced churn โ each requiring a different operational response.
Calculate and track your MRR automatically in JustPaid
Frequently Asked Questions
MRR includes only recurring subscription revenue, excluding one-time fees, professional services, and usage overages. Total revenue includes all income sources. MRR gives a cleaner view of the subscription business health.
Related Terms
ARR (Annual Recurring Revenue)
Annual Recurring Revenue (ARR) is the annualized value of a SaaS company's committed recurring subscription revenue. ARR equals MRR multiplied by 12 and usually excludes one-time fees, services, and purely variable usage, making it a standard metric for investor reporting, valuation, and annual planning.
CMRR (Committed Monthly Recurring Revenue)
Committed Monthly Recurring Revenue (CMRR) is the monthly value of contracted or committed recurring revenue. In SaaS, CMRR is used to measure subscription revenue that customers are obligated to pay, making it useful when contract start dates, onboarding delays, or committed minimums make basic MRR incomplete.
MRR Churn
MRR churn measures the amount or rate of monthly recurring revenue lost from cancellations and downgrades during a period. SaaS teams use MRR churn to understand how much recurring revenue is leaking from the customer base before or after accounting for expansion.
MRR Cohort Analysis
MRR cohort analysis tracks how monthly recurring revenue changes over time for a specific group of customers that share a starting period or characteristic. In SaaS, it helps teams understand retention, expansion, and churn trends that aggregate MRR reporting can hide.
Deferred Revenue
Deferred revenue is payment received for goods or services that have not yet been delivered, recorded as a liability on the balance sheet until the obligation is fulfilled. In SaaS, deferred revenue arises when a customer pays upfront for an annual subscription but the service is delivered monthly over 12 months.
NRR (Net Revenue Retention)
Net Revenue Retention (NRR) measures the percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn. An NRR above 100% means a SaaS company is growing revenue from its existing customer base without acquiring a single new customer.
Churn Rate
Churn rate is the percentage of customers or revenue lost over a given period. In SaaS, churn rate is the inverse of retention โ a 5% monthly customer churn means the company loses 5% of its customer base each month. Reducing churn is the single most effective lever for improving LTV, NRR, and long-term revenue growth.
