MRR — Monthly Recurring Revenue — is the money that comes in every month from your subscriptions. It's the metric investors look at first, and the one you should check daily.
A SaaS at $50K MRR generates $50,000 in recurring revenue per month. Predictable, stable, cumulative. That's the beauty of the subscription model.
How to calculate MRR
Take all your active customers. Add up what they pay each month. That's your MRR.
MRR = Σ (Monthly price of each active subscription)
A few nuances:
Annual subscriptions. A customer paying $1,200/year contributes $100 to MRR. Divide by 12, even if the money is collected upfront.
Discounts and coupons. Count the price actually paid, not the list price.
Free trials. Don't count them. Only paying subscriptions.
Add-ons and extras. If they're recurring, count them. If they're one-time (setup fees, consulting), don't.
Breaking down MRR
Your MRR moves every month. To understand why, break it into components:
New MRR — New customers acquired this month. Sign of growth.
Expansion MRR — Existing customers who upgraded or bought add-ons. The best source of growth.
Contraction MRR — Customers who downgraded. They stayed, but they're paying less.
Churned MRR — Lost customers. The MRR they represented is gone.
The full formula:
End of month MRR = Starting MRR + New + Expansion - Contraction - Churned
A healthy SaaS has New + Expansion > Contraction + Churned. MRR goes up every month.
Why MRR matters
Predictability. You know (roughly) how much you'll make next month. That lets you plan, hire, invest.
Valuation. SaaS companies are valued as multiples of MRR or ARR. A SaaS at $100K MRR could be worth $500K to $2M depending on growth and sector.
Health benchmark. Flat or declining MRR is a red flag. MRR growing 10%+ monthly is a rocket ship.
Foundation for other metrics. MRR is used to calculate churn rate, LTV, growth rate, runway.
Churn's impact on MRR
Every lost customer means less MRR. And the effect compounds.
Example: you have $100K MRR and 5% monthly churn.
- Month 1: -$5K churned MRR
- Month 2: -$4.75K (5% of $95K)
- Month 12: you've lost ~40% of your initial MRR if you don't acquire any new customers
That's why churn is enemy #1. And why reducing involuntary churn through good dunning matters so much.
Let's revisit the example: $100K MRR, 5% total churn, with 2% being involuntary.
If you recover 70% of that involuntary churn through dunning:
- Involuntary churn: 2% → 0.6%
- Total churn: 5% → 3.6%
- MRR saved over 12 months: ~$15K
$15K in recovered revenue, just by sending the right emails at the right time.
MRR vs ARR
ARR (Annual Recurring Revenue) is simply MRR × 12.
ARR = MRR × 12
ARR is used for more mature SaaS or those with mostly annual contracts. It also sounds more impressive in a pitch ("$2M ARR" sounds better than "$167K MRR").
But for day-to-day operations, MRR is more practical. Changes are more visible, trends are clearer.
Common mistakes
Counting gross revenue. MRR is recurring only. One-time sales, services, setup fees — they don't count.
Forgetting discounts. A customer at $100/month with a 50% discount = $50 MRR, not $100.
Counting free trials. Until they pay, it's $0 MRR.
Ignoring churn. Proudly displaying total MRR without looking at how much you're losing each month is fooling yourself.
What MRR should you aim for?
Depends on your stage and ambitions. Some benchmarks:
- $0 → $10K MRR: Product-market fit validation
- $10K → $100K MRR: Initial growth, first employees
- $100K → $500K MRR: Scale, potential fundraising
- $500K+ MRR: Established company
Growth matters as much as the absolute number. A SaaS at $20K MRR growing 15%/month is more interesting than a SaaS at $100K MRR that's flat.