MRR (monthly recurring revenue)

What is MRR?

MRR, or monthly recurring revenue, is the value of all your active subscriptions for one month. Annual and quarterly plans get spread out evenly, so a $24,000 annual contract counts as $2,000 of MRR each month. One-time fees, like setup or training, stay out.

Let's say you sell a project tracking tool for agencies. Forty customers pay $500 a month on monthly plans, which adds up to $20,000. Ten more paid $12,000 up front for a year, which works out to $1,000 a month each, or $10,000. Your MRR is $30,000, even though the cash that came in this month looks very different.

Multiply MRR by 12 and you get ARR, or annual recurring revenue. It shows the same revenue over a year instead of a month.

Why MRR matters for B2B SaaS

MRR is the number most SaaS teams check first, because it moves every month and shows growth before the yearly figures do. It also splits into parts that tell you where growth came from.

Here's why I think marketing leads should watch it as closely as finance does:

• It shows growth early: A month with weak new MRR shows up right away, long before it hurts the annual plan. You get time to react.
• It tells you where growth comes from: Splitting MRR into new, expansion and churned shows whether you grow by winning customers or by selling more to the ones you have.
• It links marketing to revenue: When you tag new MRR by the customer's first source, you can see which channel brought paying customers instead of just leads.
• It feeds the other metrics: NRR, churn and LTV all start from clean MRR data. If MRR is wrong, they're wrong too.

How to calculate MRR

The math is simple. The rules for what counts take more care. Here's my process:

• List every active subscription: Pull them from your billing system on the last day of the month. Leave out free trials and contracts that are signed but haven't started.
• Turn every plan into a monthly amount: Divide an annual plan by 12 and a quarterly plan by 3. A three-year deal paid up front still counts by its monthly value.
• Subtract discounts: If a customer pays 20% less for the first year, use what they really pay. Your MRR should match money you can expect to collect.
• Leave out one-time fees: Setup, onboarding, training and services aren't recurring, so report them separately.
• Pick a rule for usage: Count committed minimums in MRR and track overages on their own, or include them and say so. The rule matters less than keeping it the same every month.
• Split the movements: Sort each change into new, expansion, reactivation, contraction or churned MRR. ChartMogul uses these same groups, and they turn one total into a story you can act on.

An MRR example

Most teams use a billing analytics tool for this. ChartMogul and Baremetrics both connect to billing systems like Stripe and work out MRR and its movements on their own. ChartMogul, for example, counts a customer's second subscription as expansion and the cancellation of their last subscription as churn.

Here's a one-month MRR bridge for a hypothetical project tracking company:

The total grew 6%. But the bridge shows that churn took back half of the new business, which points the team at retention as much as at new deals.

How to measure MRR

Report the total, but spend most of your time on the parts. Here's what I'd track:

• Net new MRR: New plus expansion and reactivation, minus contraction and churn. It's the cleanest single number for monthly growth.
• New MRR by source: Keep the first touch source on every contact in your CRM and carry it to the deal. Then you can see how much new MRR came from search, paid, outbound or referrals each quarter.
• Expansion and churn rates: Divide each by starting MRR. Rising expansion with flat churn usually means your product and onboarding are working.
• SaaS quick ratio: Divide new plus expansion MRR by contraction plus churned MRR. A ratio around 4 is the common rule of thumb for healthy growth, and below 1 means you're shrinking.
• MRR growth rate: Compare ending MRR with the month before. Track it as a three-month average, since one big deal or one big loss can swing a single month.

Common MRR mistakes

• Counting the whole annual payment: A $24,000 annual deal is $2,000 of MRR. Booking all of it in the month it was signed makes that month look huge and the next eleven look empty.
• Including one-time fees: Setup and services revenue won't repeat next month, so it inflates your growth rate.
• Counting signed but not started: A contract that starts in three months isn't MRR yet. Track it as committed MRR on its own line.
• Ignoring discounts: List price overstates what you'll collect. Use the price each customer really pays.
• Mixing up churn and contraction: A customer who drops from 20 seats to 5 is still a customer. Keep the two apart, or you'll fix the wrong problem.

So here's a first step. Ask your finance team for last month's MRR bridge and check how much of the new MRR you can trace back to a marketing source. Can you find it?