What is MRR (Monthly Recurring Revenue)?Monthly Recurring Revenue (MRR) is the total predictable revenue a SaaS company can expect to receive each month from active subscriptions, normalized to a monthly figure. For a customer on an annual contract of $12,000, MRR contribution is $1,000. For a customer on a monthly plan at $200/month, MRR
What is MRR (Monthly Recurring Revenue)?
Monthly Recurring Revenue (MRR) is the total predictable revenue a SaaS company can expect to receive each month from active subscriptions, normalized to a monthly figure. For a customer on an annual contract of $12,000, MRR contribution is $1,000. For a customer on a monthly plan at $200/month, MRR contribution is $200. MRR is the most operationally relevant recurring revenue metric: it is tracked monthly, reported weekly in high-growth companies, and used to measure the real-time impact of sales, marketing, and product decisions on revenue growth.
MRR Decomposition
MRR is broken into the same five components as ARR, on a monthly basis: New MRR (from new customers acquired this month), Expansion MRR (from existing customers who upgraded), Contraction MRR (from existing customers who downgraded), Churned MRR (from customers who canceled), and Net New MRR (the algebraic sum). A healthy growing SaaS company shows: New MRR growing each month, Expansion MRR exceeding Contraction + Churned MRR (negative net churn), resulting in accelerating Net New MRR trend. Tracking this decomposition monthly provides early warning signals for revenue health issues.
Frequently Asked Questions
How do I calculate MRR for a business with both monthly and annual plans?
Normalize all contracts to a monthly value: monthly plan customers contribute their monthly payment directly. Annual plan customers contribute (annual contract value / 12) per month. Enterprise contracts with upfront payments contribute (total contract value / contract months) per month. The key principle: MRR represents the steady-state recurring revenue you would receive if all active contracts continued at their current rate. Exclude one-time implementation fees, setup charges, and variable usage fees that do not recur predictably.
What is the difference between MRR and billings?
MRR is a normalized monthly revenue metric regardless of when cash is collected. Billings is the actual cash invoiced in a period. For annual prepaid contracts: billings in the contract month equal the full annual contract value, but MRR only increases by 1/12 of that value each month. For monthly contracts: billings and MRR are equal each month. Understanding the difference is crucial for cash flow planning: a business with growing ARR from annual contracts has strong MRR metrics but potentially lumpy billings. Deferred revenue (money invoiced but not yet recognized as revenue) bridges billings and recognized revenue in GAAP accounting.