Monthly recurring revenue is the recurring subscription revenue a company expects to receive in a month, with annual and quarterly plans converted to a monthly amount. It is the standard way for self-serve and smaller SaaS businesses to track growth, because it moves quickly enough to show the effect of changes within weeks.
How MRR is calculated
Add up the monthly value of every active subscription. An annual plan is divided by twelve. One-time charges, taxes and refunds of past periods are left out.
MRR = sum of monthly subscription value for active customers
Annual plan of $1,200 contributes $100 to MRRMRR movements
The total matters less than the movements inside it. Splitting MRR changes shows whether growth comes from new customers or from existing ones, and whether churn is eating the gains.
- New MRR: from customers who started paying this month.
- Expansion MRR: upgrades, extra seats and add-ons from existing customers.
- Contraction MRR: downgrades and seat reductions.
- Churned MRR: customers who cancelled.
- Reactivation MRR: former customers who came back.
Using MRR to evaluate acquisition
For product-led companies, new MRR by sign-up source is one of the clearest ways to judge a channel. Billing tools record the subscription, and if the sign-up source is stored on the account, you can report new MRR from organic search alongside paid and referral sign-ups.
Because organic sign-ups often convert to paid after a delay, look at cohorts: the MRR generated by accounts that signed up in a given month, tracked over several months.
Example
Cohort MRR from organic sign-ups
Hypothetical company Lanternfield tags each new workspace with its first-touch source. Looking at the January cohort, accounts from organic search produced little MRR in January but kept converting over the following months, while paid sign-ups converted quickly and then flattened. The numbers are illustrative.
Common mistakes
Counting trials as MRR
Free trial accounts are not recurring revenue until they pay. Count them separately.
Ignoring discounts
Use what customers actually pay, after discounts, not the list price of their plan.
Questions
Companies with mostly monthly plans usually track MRR. Companies with annual contracts tend to report ARR. Many track both, since ARR is often just MRR times twelve.
