Monthly Recurring Revenue (MRR)
Growth MetricsMonthly recurring revenue is the normalized monthly value of all active subscriptions. It strips out the timing noise of annual prepayments, multi-year deals, and one-off invoices to give a single number that can be tracked month by month.
It is the metric every SaaS investor opens the dashboard to first, because it predicts forward revenue more reliably than reported revenue itself. A SaaS company at 1,000,000 EUR MRR is almost certainly going to book ~12,000,000 EUR over the next year, assuming retention holds. That predictability is the whole point of the recurring model.
Contents
Key takeaways
- MRR = sum of all active subscription monthly values. Annual contracts are normalized: a 12,000 EUR/year contract counts as 1,000 EUR MRR.
- Track New, Expansion, Contraction, and Churn MRR separately. Net New MRR = New + Expansion − Contraction − Churn, and is the truth metric for whether the business is growing.
- MRR excludes one-time fees, professional services, and usage overages unless they are predictable and contracted. Anything ad-hoc belongs in non-recurring revenue.
What is MRR?
MRR is the sum of the monthly value of every active subscription on the books. A customer paying 50 EUR/month contributes 50 EUR MRR. A customer on a 6,000 EUR annual plan contributes 500 EUR MRR (6,000 ÷ 12). Multi-year deals are typically treated the same way: total contract value divided by months in the term.
What counts as MRR is conservative by convention. Predictable, contracted recurring fees count. Usage-based overages count only if they are sustained and forecastable. One-time setup fees, professional services, and discounts that lapse mid-term are excluded or normalized.
How do you calculate MRR and its components?
The base formula:
MRR = Sum of (Monthly Value of Each Active Subscription)
Worked example: a SaaS company has three customers paying 200 EUR/month, two on annual plans of 4,800 EUR/year (= 400 EUR/month each), and one on a quarterly plan of 1,500 EUR/quarter (= 500 EUR/month). MRR = (3 × 200) + (2 × 400) + (1 × 500) = 600 + 800 + 500 = 1,900 EUR.
The more important calculation is Net New MRR, which decomposes the month-over-month change:
Net New MRR = New MRR + Expansion MRR − Contraction MRR − Churn MRR
Where:
- New MRR: from net-new logos closed this month.
- Expansion MRR: from existing customers upgrading, adding seats, or buying additional products.
- Contraction MRR: from existing customers downgrading or removing seats.
- Churn MRR: from customers who fully cancelled.
Worked example: New = 12,000, Expansion = 4,000, Contraction = 1,500, Churn = 3,000. Net New MRR = 12,000 + 4,000 − 1,500 − 3,000 = 11,500 EUR added this month.
MRR vs ARR: when to use which
MRR and ARR (annual recurring revenue) measure the same thing at different cadences. ARR = MRR × 12. The choice is purely about the reporting cadence and audience.
Use MRR when:
- The business is early-stage or has month-to-month subscriptions.
- Net New MRR is the operational metric the team is steering by.
- Volatility matters and a monthly window is the right resolution.
Use ARR when:
- Most contracts are annual or multi-year.
- The audience is investors, the board, or executives who think in annual terms.
- The number being communicated is the run-rate revenue, not month-over-month change.
In practice, mature SaaS companies report both: MRR for the operating team, ARR for the board.
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Frequently asked questions
Should I include free trials in MRR?
No. MRR is contracted recurring revenue. Trials only become MRR when they convert to a paid plan. Tracking trials separately as a leading indicator (trial-to-paid conversion rate) is the right approach.
How do annual prepayments affect MRR?
They don't change MRR, only cash flow. A 12,000 EUR annual contract paid upfront still counts as 1,000 EUR MRR each month over the contract term. The cash arrives in month 1 but the MRR is recognized monthly.
What's the difference between MRR and revenue?
MRR is normalized recurring contract value; revenue is what GAAP recognizes and reports. They diverge because revenue includes non-recurring items (services, one-time fees) and recurring items are timed differently. MRR predicts forward revenue better than backward-looking revenue does.