MRR

What it is

MRR (Monthly Recurring Revenue) is the normalized amount of predictable revenue a subscription business earns each month. Only recurring subscription fees count. One-time charges (setup fees, professional services, hardware, overage penalties that are not contractual) are excluded because they are not repeatable.

Contracts billed on other cycles are converted to a monthly basis. An annual plan of 1,200 contributes 100 to MRR, not 1,200 in the month it is invoiced.

Why it matters

MRR turns lumpy invoicing into a stable, comparable signal of business health. It matters because it is:

• Predictable: the foundation for forecasting and cash planning.
• Comparable: normalizes monthly, quarterly, and annual contracts onto one scale.
• Decomposable: it can be split into growth drivers, which is where the real insight lives.

The MRR movement components

Month-over-month change in MRR is usually broken into:

• New MRR: from newly acquired customers.
• Expansion MRR: upsells, cross-sells, and seat additions from existing customers.
• Contraction MRR: downgrades that reduce (but do not end) a subscription.
• Churned MRR: revenue lost from cancellations.

Net New MRR = New + Expansion, Contraction, Churned.

A related metric, Net Revenue Retention (NRR), measures whether expansion outpaces contraction and churn within the existing base. NRR above 100% means the business grows even without new logos.

How it is used in practice

• Finance uses MRR (and its annual twin ARR = MRR x 12) for revenue forecasting, valuation, and unit economics such as LTV.
• Marketing and Sales track New MRR against Customer Acquisition Cost to judge campaign efficiency.
• Product and Customer Success watch Expansion and Churned MRR to prove retention impact.
• Data teams define the calculation rules, reconcile billing data, and prevent common distortions (double counting annual deals, mixing bookings with revenue, ignoring discounts).

Worked example

A company starts a month at 100,000 MRR. During the month:

• New customers add 12,000 (New).
• Existing customers upgrade for 5,000 (Expansion).
• Some downgrade, losing 2,000 (Contraction).
• Cancellations remove 4,000 (Churned).

Net New MRR = 12,000 + 5,000, 2,000, 4,000 = 11,000.

Ending MRR = 100,000 + 11,000 = 111,000.

Annualized, that is ARR of 1,332,000. NRR on the existing base = (100,000 + 5,000, 2,000, 4,000) / 100,000 = 99%, a small warning that retention barely trails break-even.