MRR is the subscription revenue you can count on every month.

Definition

Monthly recurring revenue (MRR) is the total a business's active paid subscriptions bring in per month, with every plan converted to a monthly amount.

It matters because every other subscription metric is built on it.

Cash in the bank jumps around with annual plans, refunds and one-time fees. MRR strips those out and leaves only what repeats. That makes it the cleanest way to see whether the business is growing.

It is also the base for the rest of your numbers. Churn, retention, ARPU, lifetime value and ARR all start from MRR, so a mistake here carries into each of them.

Add up what every active subscription pays per month.

MRR = sum of the monthly price of every active paid subscription
an annual plan counts as its yearly price ÷ 12

A customer on a $1,188 annual plan adds $99 of MRR, not $1,188 in the month they pay. Leave out one-time fees, setup charges, usage charges that do not repeat, tax, and trials that have not paid yet.

MRR moves in four ways each month.

  • New MRR. Revenue from customers who made their first payment this month.
  • Expansion MRR. Increases from existing customers: upgrades, extra seats, add-ons.
  • Contraction MRR. Decreases from existing customers who stayed but pay less.
  • Churned MRR. Revenue from customers who cancelled or whose payment was never collected.

net new MRR = new + expansion − contraction − churned
ending MRR = starting MRR + net new MRR

Worked example, with made-up round numbers

You start the month at $50,000 of MRR. New customers add $4,000 and upgrades add $1,500. Downgrades take away $500 and cancellations $2,000.

  • $4,000 + $1,500 − $500 − $2,000= $3,000 net new MRR
  • $50,000 + $3,000= $53,000 ending MRR
  • $3,000 ÷ $50,000 × 100= 6% growth

You grow it by adding more than you lose, every month.

  • Turn more trials into customers. New MRR starts with a first payment. See trial-to-paid conversion rate.
  • Grow the accounts you have. Upgrades and add-ons raise MRR with no new customer to win. See expansion MRR.
  • Lose less to failed payments. Part of churned MRR is customers whose card failed. See involuntary churn.

1Capture is built for the first line of that list. It takes a card when a free trial starts, authorizes the full first payment and collects it when the trial ends, on your own Stripe account. See how it works.

These mistakes inflate MRR.

  • Counting an annual payment in the month it arrives. A $1,188 annual plan is $99 of MRR for 12 months.
  • Including one-time revenue. Setup fees, services and one-off usage charges are revenue, but they do not recur.
  • Counting trials and unpaid invoices. MRR starts with the first successful payment. A trial or a failed charge is not MRR yet.
  • Ignoring discounts. A customer on a 50% coupon adds half the list price for as long as the coupon runs.
Free tool: MRR and ARR calculatorEnter your starting MRR and the month's movements to get net new MRR, ending MRR and ARR as a waterfall.

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