What is monthly recurring revenue?
Also known as: MRR
Monthly recurring revenue (MRR) is the predictable revenue a subscription business expects to receive every month, normalized to a monthly figure. It excludes one-time charges such as setup fees, professional services, and overages.
Formula
How to calculate monthly recurring revenue
MRR = Σ (Normalized monthly value of all active subscriptions)- Normalized monthly value
- Annual contracts divided by 12; quarterly divided by 3
- Active subscriptions
- Contracts currently in force, excluding one-time and non-recurring charges
Worked example
You have 40 customers on $500/month and 10 on $12,000/year. MRR = (40 × $500) + (10 × $1,000) = $30,000.
In practice
What you need to know about monthly recurring revenue
What does not belong in MRR
Implementation fees, professional services, training, hardware, and usage overages are not recurring, and including them inflates the figure while destroying its predictive value. The whole purpose of MRR is that it is the number you can reasonably expect again next month. If a line item would not repeat automatically, it belongs in a separate revenue category.
The MRR movement breakdown is where the insight is
A single MRR total tells you very little. The useful view decomposes the change: new MRR from new customers, expansion from existing ones, contraction from downgrades, and churned MRR from cancellations. Two companies can show identical MRR growth with completely different underlying health — one growing on expansion, the other outrunning heavy churn with aggressive acquisition.
Discounts and annual prepay
Record MRR net of discounts, at the price the customer actually pays. For annual prepayments, MRR is the normalized monthly value regardless of when cash arrived — MRR is a run-rate measure, not a cash measure, and conflating the two is a common reporting error in companies that sell annually.
How to improve it
Improving monthly recurring revenue
Report the movement, not just the total
New, expansion, contraction, and churn. The composition of growth matters more than its rate.
Keep services revenue in a separate line
Blending it in makes forecasting unreliable and inflates valuation multiples applied to recurring revenue.
FAQ
Monthly recurring revenue questions, answered
How do you calculate MRR?+
Sum the normalized monthly value of every active subscription — divide annual contracts by 12 and quarterly by 3. Exclude one-time charges such as setup fees, professional services, and usage overages, since they are not recurring and reduce the figure's predictive value.
What is the difference between MRR and revenue?+
Revenue includes everything you bill, recurring or not. MRR includes only the predictable subscription component, normalized monthly. A company with large implementation fees can have revenue far above its MRR, and the gap matters because only the recurring portion is reliably repeatable.
Should annual contracts be included in MRR?+
Yes, normalized to their monthly value — a $12,000 annual contract contributes $1,000 to MRR. MRR is a run-rate measure of contracted value, not a measure of cash received, so the billing schedule does not change the calculation.
Related terms
Keep reading
Annual recurring revenue
Annual recurring revenue (ARR) is the value of a subscription business's recurring revenue normalized to a one-year period. It is the standard headline metric for B2B SaaS companies selling annual contracts.
Net revenue retention
Net revenue retention (NRR) is the percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn, but excluding new customer revenue. NRR above 100% means existing customers grew enough to more than offset all losses.
Expansion revenue
Expansion revenue is additional recurring revenue generated from existing customers through upsells, cross-sells, seat additions, or tier upgrades. It is the component of net revenue retention that allows NRR to exceed 100%.
Churn rate
Churn rate is the percentage of customers who stop paying for a product during a given period. It is calculated by dividing the number of customers lost during the period by the number of customers at the start of that period.
Customer lifetime value
Customer lifetime value (CLV) is the total gross profit a business expects to earn from a customer over the entire course of the relationship. It is used to decide how much can profitably be spent acquiring and retaining customers.
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