Financial Glossary
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the predictable, normalized revenue a subscription-based business expects to collect each month from active customers on active plans. It excludes one-time fees, professional services revenue, and usage-based charges that vary unpredictably. MRR is decomposed into its components for trend analysis: new MRR (from newly acquired customers), expansion MRR (upgrades, seat additions, or upsells to existing customers), churned MRR (from cancellations), and contraction MRR (downgrades). Net new MRR equals new plus expansion minus churned minus contraction. MRR is the foundation for projecting Annual Recurring Revenue (ARR), which equals MRR multiplied by 12.
Problem & Application
A SaaS platform serving campground operators charges $149 per month for a base plan and $299 per month for a premium plan. At the start of a quarter the platform has 120 base customers and 40 premium customers, producing MRR of ($149 times 120) plus ($299 times 40), or $17,880 plus $11,960, equaling $29,840. During the quarter, 15 new base customers sign up ($2,235 new MRR), 8 existing base customers upgrade to premium ($1,200 expansion MRR), and 5 customers cancel ($745 churned MRR). Net new MRR is $2,235 plus $1,200 minus $745, or $2,690, bringing ending MRR to $32,530. Tracking MRR monthly lets the team separate growth from churn and identify whether expansion revenue from upsells is offsetting cancellations. A declining net-MRR trend despite new customer additions typically signals a retention problem that requires immediate attention.
In Short
MRR is a critical metric for subscription-based businesses, offering insights into financial stability and growth opportunities.