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Get clear answers to what are MRR, why it matters for SaaS, and how to calculate and grow your monthly recurring revenue with practical, actionable tips.
Think of your business's financial health like a pulse. A strong, steady pulse means things are running smoothly, while a weak or erratic one signals a problem. For a subscription company, Monthly Recurring Revenue is that pulse. It’s the most reliable indicator of your momentum, smoothing out the complexities of different billing cycles and contract lengths into one clear, consistent number. Understanding what are MRR and its different types—from new business to expansion and churn—gives you a powerful diagnostic tool. It helps you see not just how much revenue is coming in, but where it’s coming from, allowing you to pinpoint what’s working and what needs your immediate attention.
If you run a subscription-based business, you're likely familiar with the flood of metrics you're told to track. But if you could only pick one, Monthly Recurring Revenue (MRR) would be a top contender. Simply put, MRR is the predictable revenue your business generates from all active subscriptions in a given month. It’s the heartbeat of your company, giving you a stable baseline to measure performance, forecast growth, and make smarter financial decisions. Let's break down what MRR really is, how it differs from its annual counterpart, and a few common mistakes to avoid when calculating it.
At its core, MRR is the total of all recurring revenue your customers bring in each month. Think of it as the foundation of your financial planning. This metric normalizes all your different subscription plans and billing cycles into a single, consistent number, which gives you a clear picture of your company's financial health and momentum. Because it measures predictable income, MRR serves as a critical baseline for everything from your pricing strategy to your customer retention efforts. It answers the fundamental question: "How much money can we expect to make from our subscribers this month?"
You'll often hear MRR mentioned in the same breath as ARR, or Annual Recurring Revenue. The difference is straightforward: MRR gives you a monthly snapshot, while ARR provides a long-term, yearly perspective. Most of the time, you can calculate ARR by simply multiplying your MRR by 12. So, why use both? MRR is perfect for short-term planning, helping you manage monthly cash flow and fine-tune your retention tactics. ARR, on the other hand, is better for high-level strategic planning and is often the metric investors focus on when assessing your company's overall health and scale.
Calculating MRR seems simple, but a few common slip-ups can throw off your numbers. First, many people confuse MRR with cash flow. MRR is a measure of revenue recognized in a period, not the actual cash that has hit your bank account. This distinction is crucial for proper financial compliance under standards like ASC 606. Another frequent error is including revenue from non-paying users. Customers on a free trial or leads who haven't converted yet don't count toward MRR. Only include revenue from active, paying subscribers to keep your data clean and your forecasts accurate.
At first glance, calculating your Monthly Recurring Revenue seems straightforward. But once you start accounting for different pricing plans, one-time fees, and mid-month upgrades, the math can get a little messy. Getting this calculation right isn’t just about having a clean spreadsheet; it’s about understanding the true financial pulse of your business. Accurate MRR is the foundation for reliable forecasting, smart budgeting, and sustainable growth.
To get an accurate picture, you need to break the calculation down into its core components. It’s essential to separate the predictable, recurring revenue from other income streams. This clarity helps you make better strategic decisions, whether you're planning your next product launch or presenting your growth trajectory to investors. For high-volume businesses, manually tracking every subscription change, discount, and add-on is not just tedious—it's a recipe for error. An automated system that handles these complexities is crucial for maintaining accuracy and freeing up your team's time. Let's walk through how to calculate MRR, from the basic formula to the trickier scenarios you'll encounter in your day-to-day operations.
The simplest way to calculate MRR is by multiplying your total number of active customers by the average amount they pay you each month. This is also known as the Average Revenue Per User (ARPU).
The formula looks like this: MRR = Total Number of Customers × Average Revenue Per User (ARPU)
For example, if you have 50 customers and they each pay you $100 per month, your MRR is $5,000 (50 × $100). This basic formula works perfectly if you have a single pricing plan with no variations. It gives you a quick, high-level snapshot of your predictable monthly income.
Most subscription businesses offer multiple pricing plans to cater to different customer needs. If you have a "Basic," "Pro," and "Enterprise" plan, you can't just use a single average. Instead, you'll need to calculate the MRR for each tier separately and then add them together to find your total MRR.
Here’s how that works:
For instance, if you have 30 customers on a $50/month plan and 10 customers on a $150/month plan, your total MRR would be ($30 × 50) + ($10 × 150) = $1,500 + $1,500 = $3,000.
This is one of the most common mistakes businesses make when calculating MRR. Remember, the "R" in MRR stands for recurring. That means any one-time payments must be excluded from your calculation. MRR is a measure of predictable revenue, not a cash flow statement.
Be sure to leave out revenue from:
Including these figures will inflate your MRR and give you a false sense of your company's predictable growth. Proper revenue recognition under ASC 606 requires separating these revenue streams, which is critical for both accurate reporting and compliance.
Your list price isn't always what a customer pays. To keep your MRR accurate, you need to account for discounts, coupons, and recurring add-ons. If a customer is on a $100/month plan but has a permanent 10% discount, their contribution to your MRR is $90, not $100.
On the flip side, recurring add-ons increase a customer's monthly value. If that same customer adds a feature for an extra $25/month, their total contribution becomes $115. Tracking these changes is essential, as they directly impact Expansion MRR—the additional revenue you generate from existing customers. Managing these details manually can be a headache, which is why many businesses schedule a demo to see how automation can provide a clearer financial picture.
Your total MRR is a great top-line number, but the real story is in the details. To truly understand your business's momentum, you need to break MRR down into its core components. Think of it like looking at your personal budget—you don't just look at the final number in your bank account; you look at income, savings, and different spending categories. Each type of MRR tells you something different about your customer relationships and growth trajectory. By tracking these individual pieces, you can pinpoint what’s working and what needs attention, turning a simple number into a powerful diagnostic tool for your company's health. This detailed view is what allows you to make smarter, more informed decisions instead of just reacting to a single, overarching metric.
This is the most straightforward piece of the puzzle. New MRR is the recurring revenue you generate from brand-new customers in a given month. It’s a direct reflection of your sales and marketing success. When you run a successful ad campaign or your sales team has a great month, you’ll see it here first. Tracking New MRR helps you understand how effectively you’re attracting new clients and expanding your footprint in the market. It’s the engine of your growth, bringing fresh revenue into your business and validating your acquisition strategy. A steady flow of New MRR is a clear sign that your product is resonating with your target audience.
Expansion MRR is my personal favorite because it shows your product is delivering real value. This is the additional monthly revenue you get from existing customers. It happens when they upgrade to a higher-priced plan, add more users, or purchase an add-on feature. This metric is a powerful indicator of customer satisfaction and loyalty. A healthy Expansion MRR means your customers are growing with you and finding more reasons to invest in your service. It’s often much cheaper to generate revenue from existing customers than to acquire new ones, making this a highly efficient growth lever for any subscription business.
On the flip side, you have Contraction MRR. This represents the revenue you lose when existing customers downgrade to a cheaper plan or remove add-ons. While no one likes to see this number go up, it provides critical feedback. A spike in Contraction MRR could signal that a pricing tier is too expensive, a feature isn’t meeting expectations, or customers are facing budget cuts. By monitoring this metric, you can proactively identify areas for improvement and take steps to improve customer satisfaction before a downgrade turns into a complete cancellation. It’s an early warning system that deserves your attention.
Churn MRR is the revenue you lose when customers cancel their subscriptions altogether. This is a direct hit to your bottom line and a key indicator of your business's health. Every subscription company deals with churn, but the goal is to keep it as low as possible. Tracking Churn MRR helps you quantify the financial impact of losing customers and is essential for assessing your customer retention efforts. Understanding why customers are leaving is the first step toward building a strategy to keep them around for the long haul. This metric tells you if you have a leaky bucket that needs patching.
Finally, Net New MRR ties everything together to give you a clear, holistic view of your monthly growth. You calculate it by adding your New MRR and Expansion MRR, then subtracting your Contraction MRR and Churn MRR. The final number shows you the net change in your recurring revenue for the month. A positive Net New MRR means you’re growing, while a negative number means you’re shrinking. This is the ultimate metric for strategic planning, as it provides a comprehensive snapshot of your revenue momentum from all angles and tells you the true pace of your growth.
Tracking Monthly Recurring Revenue is about more than just watching a number go up. It’s about understanding the fundamental health and momentum of your subscription business. MRR acts as a reliable pulse check, giving you a clear, consistent view of your financial performance month over month. By normalizing revenue from various subscription terms—whether they’re annual, quarterly, or monthly—MRR provides the predictability you need to make strategic decisions with confidence. It’s the foundation for accurate forecasting, a key component in your company's valuation, and a critical indicator of sustainable growth that both your internal team and external stakeholders can rely on.
One of the biggest advantages of tracking MRR is the ability to forecast future revenue with a high degree of accuracy. For subscription companies, income can be lumpy when you’re juggling customers on different contract lengths. MRR smooths out these variations, giving you a stable baseline to project from. This predictability is invaluable for planning. It helps you make smarter decisions about your budget, justify new hires, and allocate resources effectively. When you know what’s coming in each month, you can move from reactive spending to proactive investment in your company’s growth.
MRR is a cornerstone metric for determining your business’s valuation. It provides a clear, standardized measure of your company's current performance and growth potential. But the real power comes from looking at MRR alongside other key metrics. When combined with data on customer lifetime value (CLV) and churn, MRR tells a compelling story about your business's scalability and long-term viability. This comprehensive view allows you to accurately measure growth, refine your pricing and packaging, and ultimately understand what your business is truly worth in the eyes of acquirers or investors.
If you’re looking to raise capital, a solid and growing MRR is one of your greatest assets. Investors are drawn to predictability, and nothing demonstrates a stable, scalable business model quite like a consistent stream of recurring revenue. MRR proves that you have a product customers are willing to pay for month after month, indicating strong product-market fit. A clear, upward trend in your MRR growth—especially your Net New MRR—shows that you’re not just retaining customers but also successfully acquiring new ones and expanding existing accounts. Before you start those conversations, it's critical to get your financial data in order to present a clear and compelling case.
While Annual Recurring Revenue (ARR) is great for the big picture, MRR gives you the short-term insights needed for day-to-day operations. It offers a real-time pulse on your monthly cash flow, helping you manage expenses and make informed financial decisions. A sudden dip in MRR can be an early warning sign of a retention problem, allowing you to address the issue before it snowballs. With a clear view of your monthly revenue, you can confidently cover operational costs and plan for short-term financial needs. This clarity is often enhanced by seamless integrations that pull all your financial data into one place.
While MRR is a fantastic indicator of your business's momentum, it doesn't tell the whole story on its own. Think of it as the speedometer in your car—it tells you how fast you're going, but not how much fuel you have, how healthy the engine is, or if you're heading in the right direction. To get a complete picture of your company's health and long-term viability, you need to look at MRR in context with other key performance indicators (KPIs).
Tracking these additional metrics helps you understand the why behind your MRR changes. Is your revenue growing because you're acquiring new customers or because existing ones are spending more? Are you losing customers as fast as you're gaining them? Answering these questions is crucial for making smart, strategic decisions. By pairing MRR with the metrics below, you can build a more sustainable, profitable business and ensure your growth is built on a solid foundation.
Customer Lifetime Value, or CLV, predicts the total revenue your business can expect from a single customer account throughout your entire relationship. It’s essentially the total worth of a customer over time. Understanding your CLV is critical because it helps you determine how much you can afford to spend on acquiring new customers while still remaining profitable. If you know the average customer will bring in $1,000 over their lifetime, you have a clear benchmark for your marketing and sales spending. A strong CLV is a sign of a healthy business with a loyal customer base.
Average Revenue Per User (ARPU) measures the revenue generated per customer, usually on a monthly or yearly basis. You can calculate it by dividing your total revenue by your number of active customers. ARPU gives you a snapshot of how much each customer contributes to your bottom line. This metric is especially useful for understanding the value of different customer segments or pricing tiers. If your ARPU is increasing, it could mean customers are upgrading to higher-priced plans or buying add-ons, which is a great sign for your revenue growth.
Net Revenue Retention (NRR) is a powerful metric that shows you how much of your recurring revenue you've retained from your existing customers over a period. It accounts for revenue from upgrades (expansion) while also factoring in losses from downgrades (contraction) and cancellations (churn). An NRR over 100% means your existing customers are generating more revenue than they were in the previous period—a sign of a sticky product and happy customers. It’s a vital indicator of business health because it shows you can grow even without acquiring new customers.
Customer churn rate is the percentage of subscribers who cancel their service within a specific time frame. It’s the direct opposite of retention and represents a leak in your revenue bucket. While some churn is unavoidable, a high rate can signal issues with your product, customer service, or pricing. Tracking your churn rate is essential because it directly impacts your MRR and CLV. Reducing churn is one of the most effective ways to stabilize your revenue and build a foundation for sustainable growth. It’s always more cost-effective to keep a customer than to acquire a new one.
Customer Acquisition Cost (CAC) is the total cost of sales and marketing efforts needed to acquire a single new customer. This includes everything from ad spend and marketing salaries to sales commissions. You need to track CAC alongside CLV to ensure your business model is viable. A healthy business has a CLV that is significantly higher than its CAC—a common rule of thumb is a 3:1 ratio. If it costs you more to acquire a customer than they generate in revenue, you’ll need to adjust your strategy to stay afloat.
On the surface, tracking Monthly Recurring Revenue seems straightforward. You just add up your monthly subscription fees, right? In the early days, that might work. But as your business grows, you’ll quickly find that calculating an accurate MRR figure becomes a major headache. Simple spreadsheets that once felt manageable can become a tangled web of formulas, prone to human error and difficult to scale.
The complexity multiplies when you introduce different pricing tiers, promotions, and mid-cycle subscription changes. Suddenly, you’re not just adding numbers; you’re prorating fees, accounting for discounts, and trying to pull data from multiple systems that don’t speak the same language. These challenges aren’t just minor annoyances—they can lead to inaccurate financial reporting, flawed forecasting, and poor strategic decisions. Getting MRR right is fundamental to understanding your company's momentum. When the numbers are off, everything else is too. From securing funding to managing cash flow, every major decision relies on having a clear and accurate picture of your recurring revenue. Understanding these common hurdles is the first step toward building a reliable system for tracking the financial health of your business.
As your business evolves, so will your pricing. You might offer different subscription tiers, annual plans paid upfront, usage-based fees, or special discounts for new customers. While great for attracting a wider audience, this flexibility makes MRR calculations much more complicated. Your calculations get more complex when you have different contract lengths or gaps in subscriptions. How do you properly recognize revenue from an annual plan on a monthly basis? Or account for a temporary discount? Manually tracking these variables for every single customer is not only time-consuming but also opens the door to costly errors that can misrepresent your company’s performance and momentum.
Your customer revenue data rarely lives in one place. You likely have a payment processor like Stripe, a CRM where you manage customer relationships, and your accounting software. Each system holds a piece of the MRR puzzle. To get a complete picture, you need to pull information from all of them. Without a unified system, your team might spend hours exporting CSVs and manually piecing data together. This process is inefficient and often leads to discrepancies. True insight comes when you can use powerful integrations to see how marketing efforts, sales activities, and customer support all impact your recurring revenue in real-time.
Customers rarely wait for the first of the month to change their subscription plans. They upgrade when they need more features and downgrade when their needs change. These mid-cycle adjustments are a healthy part of a subscription business, but they create complexity in your MRR calculations. You have to prorate the charges for the remainder of the billing period, which affects your Expansion MRR from upgrades and Contraction MRR from downgrades. Getting these prorations wrong can throw off your overall MRR and give you a skewed view of customer behavior and revenue trends, making it difficult to understand what’s truly driving growth or churn.
What one department calls "MRR" another might calculate differently. If your sales team includes one-time setup fees in their reporting, but your finance team excludes them, you have a problem. This lack of standardization leads to confusion and makes it impossible to trust your numbers. To make sound business decisions, everyone from the CEO to the marketing manager needs to work from a single source of truth. Establishing clear, consistent definitions and formulas for all your metrics ensures that every report tells the same accurate story about your company’s growth and financial stability. Without it, you're just comparing apples to oranges.
Tracking MRR isn’t a set-it-and-forget-it task. It requires constant attention to maintain data integrity. Simple data entry mistakes, failed payments that aren’t properly recorded, or incorrect currency conversions can all distort your MRR figures. An inaccurate MRR can cause you to miscalculate your cash flow, set unrealistic growth targets, and miss important trends in customer churn. By tracking MRR growth accurately, you can make strategic decisions that genuinely support long-term success. If you’re struggling with accuracy and manual processes, it might be time to schedule a demo to see how automation can provide a clear, reliable picture of your financials.
Growing your Monthly Recurring Revenue isn't just about signing up new customers. While acquiring new business is a big piece of the puzzle, sustainable growth comes from a holistic approach that also focuses on the customers you already have. Think of it as tending a garden: you can’t just keep planting new seeds without also watering and nurturing the plants that are already growing. The most effective strategies involve a mix of attracting new users, keeping existing ones happy, and increasing the value each customer brings to your business over time.
Before you can effectively grow your MRR, you need a crystal-clear picture of where it stands today. This means having accurate, real-time data at your fingertips. When your financial data is clean and accessible, you can make smarter decisions about where to invest your time and resources. With a solid foundation of data, you can confidently pull the right levers for growth. Let's walk through four key strategies you can use to increase your MRR.
Your pricing shouldn't be set in stone. As your product evolves and the market changes, your pricing strategy should, too. A great first step is to check what your competitors are charging to ensure your prices are aligned with the market. But don't just copy them—think about the unique value you offer. Consider moving to a value-based pricing model where your tiers reflect the specific benefits customers get. You might also explore different ways to charge, like switching from a flat fee to a per-user model if it better aligns with how customers use your service. Regularly reviewing and adjusting your pricing strategy ensures you're not leaving money on the table.
It’s almost always more cost-effective to keep a current customer than to acquire a new one. When customers cancel their subscriptions, it creates a leak in your revenue bucket that you have to constantly refill with new sales. To reduce churn, you first need to understand why customers are leaving. Start by implementing exit surveys or reaching out personally to departing customers for feedback. Once you identify common pain points—whether it’s a missing feature, a difficult user interface, or a customer service issue—you can create a plan to fix them. Proactively addressing these problems will help you keep more of your hard-earned customers.
Your existing customer base is one of your greatest assets for growth. You can increase your MRR by encouraging current customers to upgrade to more expensive plans (upselling) or purchase additional products and services (cross-selling). Map out your customer journey and identify logical points to introduce these offers. For example, when a customer is nearing a usage limit on their current plan, that’s a perfect time to present an upgrade. Having a system with seamless integrations can help you track customer behavior and trigger these offers at just the right moment, making the process feel helpful rather than pushy.
Customer success is about proactively ensuring your clients get the maximum possible value from your product or service. It goes beyond reactive customer support. A strong customer success program includes smooth onboarding, regular check-ins, and educational resources that help users achieve their goals. When customers are successful, they’re far less likely to churn. They’re also more likely to become advocates for your brand and be open to upsell opportunities. Investing in a dedicated customer success team or resources is a direct investment in reducing churn and growing your Expansion MRR over the long term.
Tracking MRR is one thing, but reporting on it accurately and consistently is what truly separates high-growth businesses from the rest. Solid reporting practices turn your MRR from a simple number into a powerful tool for strategic planning. After all, MRR measures predictable income from active subscriptions and serves as a baseline metric for forecasting, pricing strategy, and customer retention. When your reporting is on point, you can trust the data to guide your decisions, from setting sales targets to planning your next product move. Getting this right means you’re not just tracking revenue; you’re building a predictable, scalable business. For more on financial metrics, you can find additional insights in the HubiFi blog.
Once you have a handle on your MRR, you can set growth targets that are ambitious yet achievable. Instead of just aiming for a higher number, use your MRR data to inform a multi-faceted growth strategy. To drive business growth, you should focus on improving customer retention, encouraging upgrades and add-ons, and reducing customer acquisition costs. For example, if your Expansion MRR is low, you might focus on creating clearer upgrade paths for existing customers. If Churn MRR is high, your priority should be retention. This data-driven approach helps you allocate resources effectively and build sustainable momentum.
Inaccurate MRR is often the result of messy data pulled from different places—your CRM, billing platform, and a dozen spreadsheets. This creates conflicting numbers and a lot of headaches. Establishing a single source of truth is essential, which means centralizing your data so that everyone in the company is working from the same numbers. When you have one reliable dashboard, MRR provides valuable insights into the health of your business, making it an indispensable tool. This clarity is crucial for making confident decisions and ensuring your entire team is aligned. HubiFi offers seamless integrations to help you achieve this.
MRR isn’t a metric you check once a quarter. To get the most out of it, you need to establish a consistent reporting cadence—whether that’s weekly, bi-weekly, or monthly. Regular reporting helps you spot trends as they emerge, not after they’ve already impacted your bottom line. By keeping track of your MRR metrics and analyzing their trends, you can optimize your subscription model, ensure customer satisfaction, and drive revenue growth. This rhythm keeps your team focused on the metrics that matter and allows you to be proactive, making small adjustments along the way to stay on track toward your bigger goals.
For any subscription business, accurate MRR reporting is a cornerstone of financial compliance. Standards like ASC 606 require you to recognize revenue as you earn it, and your MRR calculations are a key input for that process. Investors and auditors will want to see a clear, logical, and defensible method for how you track and report this metric. Getting it wrong can lead to serious compliance issues and undermine trust in your financials. By ensuring your MRR reporting is airtight, you’re not just creating internal clarity—you’re building a financially sound business that’s ready for its next stage of growth. You can learn more about HubiFi and our expertise in this area.
What's the most common mistake people make when calculating MRR? The biggest slip-up is including one-time payments. It's easy to see a setup fee or a consulting charge hit your bank account and want to count it, but MRR is all about predictable, recurring revenue. Including those one-off charges will inflate your numbers and give you a false sense of your company's stable monthly income. To keep your forecasting accurate and your reporting compliant, you have to be strict about only including revenue from active, ongoing subscriptions.
Why is MRR a better growth indicator than just looking at my monthly revenue? Your total monthly revenue can be misleading because it often includes unpredictable income streams like one-time fees or project work. MRR smooths out those bumps by focusing exclusively on the predictable income from your subscribers. This gives you a stable baseline to measure your momentum, forecast future earnings with confidence, and understand the true health of your subscription model. It answers the question, "What is the reliable revenue we can count on next month?" which is far more valuable for strategic planning.
My business offers annual plans. How do I account for those in my MRR? This is a great question because it trips a lot of people up. Even though a customer pays you for a full year upfront, you shouldn't count that entire payment in the month it was received. For accurate MRR tracking, you need to normalize that revenue. You do this by dividing the total annual contract value by 12 and adding that amount to your MRR for each month of the contract term. This ensures you're recognizing revenue as you earn it, which is crucial for both accurate reporting and financial compliance.
Is it better to focus on New MRR or Expansion MRR for growth? In a perfect world, you'd focus on both. New MRR from new customers is essential because it shows your product is attracting a fresh audience and your acquisition strategy is working. However, Expansion MRR, which comes from existing customers upgrading or adding services, is often a more efficient way to grow. It proves your product is delivering value and that your customers are loyal. A healthy business has a strong mix of both, but a high Expansion MRR is a powerful sign of a sustainable and scalable business model.
My MRR is growing, but so is my customer churn. Is that a problem? Yes, this is definitely a red flag. While your top-line MRR might be increasing due to strong new sales, high churn means you have a "leaky bucket." You're constantly having to acquire new customers just to replace the ones you're losing, which is an expensive and unsustainable way to grow. This is why tracking Net New MRR is so important. It balances your gains from new and expanding customers against your losses from downgrades and cancellations, giving you the true picture of your momentum. If that number is low or stagnant, it's time to focus on retention.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.