To ensure financial success for any business, the ability to reliably predict and forecast cash flow is paramount.
Monthly recurring revenue helps companies achieve this by providing them with an expected revenue stream from their customers that can be tracked and planned for on a month-to-month basis.
What is MRR (Monthly Recurring Revenue)?
MRR means Monthly Recurring Revenue, a metric used to measure the amount of recurring revenue that a company can expect to receive from its customers every month.
It is a measure of the predictable revenue that a business can rely on over the course of a month and is typically calculated using subscription services or recurring payments from customers.
MRR is one of the most important performance metrics to track, as it can provide more accurate revenue predictions than other metrics, such as lifetime value (LTV).
This enables companies to more effectively plan their finances and operations for the upcoming months, as well as identify opportunities for upselling and revenue optimization.
This metric accounts for recurring monthly fees, discounts, and credits, including:
- Subscription Fees: Monthly streaming services, software subscriptions, and any other subscription-based businesses.
- Recurring Services: Ongoing services such as maintenance contracts, support plans, and consulting fees using the retainer model.
- Usage Fees: Usage-based payments charged to customers monthly.
- Discounts: Any sales discounts or credits applied to customer bills.
- Coupons: Promotional and loyalty rewards that occur on a predictable basis.
- Recurring Add-Ons: Any additional services or products that are automatically added to customers’ monthly bills.
MRR calculation does not factor in one-time payments, receivables, or any other non-recurring revenue.
It is also important to note that MRR can be a volatile metric, as it is dependent on customer retention and churn rate. If customers cancel their subscriptions or stop using recurring services, the MRR will decrease.
Conversely, if new customers are acquired or existing customers upgrade their subscription plans, the MRR will increase.
Synonyms
- Predictable Revenue
- Revenue Retention
The Value of Understanding Your MRR
Having a clear understanding of revenue on a month-to-month basis is vital for any business. Critical benefits of monitoring MRR include:
- Accurate Forecasting: Businesses can plan and budget accordingly by understanding how much money is consistently coming in.
- Improved Cash Flow Management: Knowing MRR enables companies to more accurately predict their monthly cash flow, allowing them to make informed decisions about resource allocation for maximum efficiency and growth.
- Insight Into Customer Retention and Churn: Tracking MRR can provide valuable insights into customer retention rates, which in turn can help businesses identify ways to reduce customer churn.
- Better Relationships With Investors and Stakeholders: Stable MRR shows potential investors and stakeholders that a business is on the right track and can be relied upon to generate consistent revenue. Accurate reporting means faster and more efficient board meetings.
- Increased Visibility into Upsells and Cross-Sells: Tracking MRR helps businesses understand when customers are ready for upsells or cross-sells, allowing them to capitalize on these opportunities.
- Optimized Pricing Strategies: MRR helps businesses determine appropriate pricing for their services and products, allowing them to make sure that they are getting the most out of their relationships with current customers.
Understanding which accounts are the most valuable can also help companies improve their customer relationship management efforts.
When businesses understand their customers’ monthly spending patterns, they can nurture those accounts to increase the value of their relationships.
Types of Monthly Recurring Revenue (MRR)
MRR isn’t as simple as it seems. Because each subscription business might use a different revenue model, figuring out the revenue per customer isn’t always straightforward.
There are different types of MRR, including:
Upgrade MRR
The MRR resulting from customers upgrading their subscription plans or services is called upgrade MRR.
This metric helps businesses understand if their customers are engaging with new services and products or upgrading to higher tiers of subscriptions, allowing them to improve their product portfolio and upsell opportunities.
Typically, upgrade MRR is a positive number, indicating that customers are investing more money into their subscriptions.
Churn MRR
Churn MRR is the amount of monthly recurring revenue lost due to customer cancellations or downgrades.
Tracking churn MRR provides valuable insights into how customers are engaging with services and products, as well as which strategies and tactics are effective in reducing customer attrition.
Downgrade MRR
When customers downgrade their subscriptions or services, the MRR resulting from those changes is referred to as downgrade MRR.
Following this number helps businesses identify when customers are not getting enough value from a service or product and can help them improve customer satisfaction and retention rates.
Reactivation MRR
Customers who have canceled their subscriptions but then reactivated them at a later date generate reactivation MRR.
Companies need to include this metric in their MRR calculations to get an accurate picture of their customer base and the value that they are generating.
Expansion MRR
If customers increase their spending on a service or product, companies can track expansion MRR. Companies should look for opportunities to expand their customer base and boost retention by capitalizing on expansion MRR.
Contraction MRR
Contraction MRR is the opposite of expansion MRR—it is the MRR resulting from customers decreasing their subscription plans or services.
This metric helps businesses identify ways to reduce customer churn and improve retention rates.
Net New MRR
The total amount of new MRR generated in a given period is called net new MRR.
This metric helps businesses understand the growth rate of their customer base and track the performance of customer acquisition campaigns.
How to Calculate MRR
The monthly recurring revenue formula is as follows:
For example, if a business has 100 customers paying $50 per month, their total MRR would be $5,000 ($50 x 100 customers).
Common Calculation Mistakes
While MRR is a powerful metric for tracking predictable revenue, it’s easy to miscalculate if certain pitfalls aren’t avoided. Common mistakes include:
- Including Non-Recurring Revenue: One-time fees, setup charges, or professional services should not be counted as MRR, since they don’t contribute to predictable monthly revenue.
- Failing to Normalize Multi-Period Contracts: Annual or quarterly subscriptions must be broken down into monthly equivalents to ensure accurate MRR calculations.
- Miscounting Free Trials or Promotions: Free trial periods or discounted promotional offers should not inflate MRR until they convert into paying subscriptions.
- Overlooking Refunds or Deferred Revenue Adjustments: Ignoring customer refunds, cancellations, or deferred revenue can overstate MRR and provide a misleading picture of financial health.
| Mistake | Example | Correct Approach |
|---|---|---|
| Including Non-Recurring Revenue | $500 setup fee for a new customer | Exclude one-time fees from MRR calculations |
| Failing to Normalize Multi-Period Contracts | Annual subscription of $1,200 | Divide by 12 months → $100 MRR per month |
| Miscounting Free Trials or Promotions | Customer on a 30-day free trial | Only include MRR once the trial converts to a paid subscription |
| Overlooking Refunds or Deferred Revenue | Customer cancels and is refunded $50 | Subtract refunds and adjust for deferred revenue to reflect actual recurring revenue |
Being mindful of these errors ensures your MRR reflects true recurring revenue and supports reliable forecasting.
Why Tracking MRR is Important
MRR isn’t just a vanity metric—it gives companies valuable insights into revenue operations.
Performance Tracking
Closely monitoring MRR helps companies understand how enterprise value changes over time and provides a snapshot of their overall health and business performance.
For instance, tracking churn and expansion MRR can help companies identify high-value customers and opportunities for growth.
Tracking contraction MRR can alert businesses to potential customer attrition issues and allow them to take steps to mitigate the fallout from those changes.
When calculating net new MRR, companies can get an in-depth understanding of their customer acquisition efforts and identify areas for improvement in their sales process and customer onboarding.
Revenue Forecasting
MRR is a key metric in revenue forecasting because it provides insight into how much revenue a business can expect to generate each month.
Companies can use this data to plan their budget, allocate resources, and adjust pricing models accordingly.
MRR is also helpful in predicting customer lifetime value and understanding the overall health of a company’s customer base.
Budgeting
Companies that use the subscription business model face unique challenges when it comes to budgeting.
Since most of their income is monthly revenue, it is predictable, but it also means that businesses have to plan and prepare for any deficits or spikes in revenue.
Tracking MRR provides valuable insights into expected income, allowing companies to budget accordingly.
Incorporating MRR in Forecasting and Analytics Tools
Understanding why tracking MRR matters is just the first step; its true value comes when the metric is actively used to drive decisions. By integrating MRR into dashboards, analytics platforms, and RevOps tools, businesses can turn raw data into actionable insights.
MRR plays a central role in revenue operations (RevOps) by enabling teams to monitor key performance indicators (KPIs) such as new MRR, expansion MRR, and churn. It supports automation and alerting, allowing managers to respond quickly to changes in revenue trends. Additionally, incorporating MRR into forecasting models helps businesses predict growth, allocate resources more effectively, and make strategic decisions with confidence. When used within a comprehensive RevOps tech stack, MRR becomes a lens for optimizing revenue performance and planning for sustainable, long-term growth.
How to Increase Monthly Recurring Revenue (MRR)
From increasing the revenue per customer and securing longer contracts to using technology and automation, companies using the subscription model can increase their MRR in several ways.
Selling annual subscriptions at a discount
Unlike monthly plans, annual contracts offer companies the option to charge customers upfront and provide a discount for the commitment.
This often incentivizes customers to purchase the product or service and provides a steady stream of income that companies can rely on.
Since this strategy involves reducing the potential total revenue by discounting an annual subscription, it usually pays off in the long run because it ensures that the customer will be “paying” for an entire year.
By focusing on annual recurring revenue (ARR), companies can reduce the risk of customer churn that a monthly subscription carries, increasing MRR in the long run.
Investing in customer acquisition
Acquiring new customers is key to creating future revenue. Companies must invest in marketing and other customer acquisition strategies such as content creation, referral programs, and targeted ads.
These activities help firms reach a broad audience of potential customers and generate leads that can be converted into paying customers.
Additionally, investing in customer service initiatives like onboarding and customer success can reduce MRR churn and help businesses build long-term relationships with current customers.
Increasing revenue per customer
Offering upgrades or additional services to existing customers can help companies boost their average revenue per user (ARPU).
By creating new revenue streams for active subscriptions, companies can encourage customers to increase their subscription plans and add more value to their purchases.
This strategy is known as inside sales, and many sales organizations have teams dedicated to finding new sales opportunities within existing client relationships.
Automating the billing process
Billing is one of the most tedious and time-consuming tasks in any business, but it’s an essential component of success.
Automating billing processes with subscription management software can help companies increase efficiency, reduce manual errors, and streamline the customer experience.
These tools also enable businesses to track MRR more accurately by providing real-time insights into revenue performance.
Additionally, subscription management solutions offer features such as automated payment retries and dunning management, which can help companies minimize missed payments and reduce customer churn.
Leveraging Configure, Price, Quote (CPQ) solutions
CPQ software helps businesses increase MRR by making the sales process faster, smarter, and more personalized. With guided selling, CPQ directs sales reps to recommend the right products and services for each customer, increasing the likelihood of upsells and cross-sells. Price optimization features ensure that quotes are both competitive and profitable, while personalized recommendations tailor offerings to each customer’s needs, boosting subscription upgrades and add-ons.
CPQ also streamlines complex pricing and quoting workflows, allowing sales teams to generate accurate, customized quotes quickly. By combining CPQ with subscription management tools, companies can reduce errors, shorten the sales cycle, and create a more attractive, easy-to-understand pricing structure, which directly contribute to higher MRR and more predictable recurring revenue.
People Also Ask
How do you generate recurring revenue?
Companies generate recurring revenue in a few ways:
1. Offering subscription services
2. Charging customers regularly for usage fees
3. Creating membership models
4. Including additional services to existing products (e.g., the “freemium model” or low-cost add-ons)
5. Selling digital content
What is monthly recurring revenue in SaaS?
In Software-as-a-Service (SaaS) businesses, Monthly Recurring Revenue (MRR) is the revenue generated in a given month from customers who have signed up for a subscription to use the software. This number can vary widely depending on the size and type of business, but it typically includes both new subscriptions and upgrades or renewals from existing customers.
What are examples of recurring revenue?
Recurring revenue comes from predictable, repeatable sources that generate consistent income over time. Common examples include:
Subscription Services – Monthly or annual fees for software (SaaS), streaming platforms, or digital tools.
Membership Fees – Gym memberships, professional associations, or loyalty programs.
Maintenance and Support Contracts – IT support, equipment servicing, or warranty plans.
Licensing Fees – Software licenses or content licenses renewed periodically.
Consumable or Product Subscriptions – Subscription boxes, meal kits, or regular product deliveries.
Rentals and Leases – Office space, vehicles, or equipment leased on a recurring schedule.
These types of revenue help businesses predict cash flow, forecast growth, and plan investments with more certainty.
Why is MRR considered a non-GAAP metric, and what does that mean for financial reporting?
MRR is a non-GAAP metric, meaning it doesn’t follow official accounting standards like GAAP or IFRS. This makes it unsuitable for formal financial reporting or tax purposes. However, MRR is invaluable for internal forecasting, performance tracking, and planning, helping businesses understand predictable revenue trends and make strategic growth decisions.