Definition of Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the amount of predictable revenue a business expects to generate each month from its active subscription customers. It represents the normalized monthly value of all recurring subscription revenue and is a core metric for SaaS and other subscription-based businesses.
How MRR Is Calculated
MRR is calculated by summing the monthly subscription value of all active customers. If customers are billed annually, the contract value is converted to a monthly equivalent. For example, a $12,000 annual contract contributes $1,000 to MRR. One-time fees, setup charges, or non-recurring revenue are typically excluded.
Example of MRR
If a company has 10 customers paying $500 per month, its MRR is $5,000. If another customer pays $12,000 annually, that adds $1,000 to MRR, bringing total MRR to $6,000.
MRR Explained for a General Audience
For a general audience, MRR is simply the money a company makes every month from subscriptions. It is recurring because customers are billed regularly as long as they remain subscribed. Businesses like MRR because it is predictable and easier to plan around than one-time sales.
Why MRR Is Important
MRR provides a clear snapshot of a company’s revenue run-rate in any given month. Tracking MRR over time helps companies understand whether they are growing, stagnating, or shrinking. An increasing MRR usually means more customers, higher prices, or successful upsells, while a declining MRR often signals churn.
Types of MRR
Companies often break MRR into components such as New MRR from new customers, Expansion MRR from existing customers upgrading, Churn MRR from cancellations or downgrades, and Net New MRR, which reflects the overall monthly change. These breakdowns help identify what is driving growth or decline.
MRR vs ARR
MRR is closely related to Annual Recurring Revenue (ARR), which is typically calculated as MRR multiplied by 12. Early-stage companies often focus on MRR because it shows growth in finer monthly increments, while more mature companies may emphasize ARR.
MRR and Forecasting
MRR is widely used for forecasting and financial planning. By analyzing MRR growth rates and churn trends, companies can project future revenue and plan hiring, marketing, and investment decisions. While actual recognized revenue may differ slightly due to billing cycles, MRR provides a reliable approximation of revenue momentum.
MRR in Ratio’s Context
In Ratio’s context, MRR is a key indicator of revenue stability and growth potential. Financing models often evaluate MRR, churn, and growth trends to determine access to capital. As MRR grows, companies may be able to unlock more upfront cash or larger financing limits through Ratio’s solutions.
Why MRR Matters in a Glossary Context
Including MRR in a glossary helps explain one of the most fundamental metrics in subscription businesses. Understanding MRR provides context for discussions around growth, retention, financing, and company valuation.
Summary
Monthly Recurring Revenue measures the predictable, recurring monthly income from subscriptions. It is a foundational metric for tracking growth, forecasting revenue, and assessing the health of a subscription business. Managing and growing MRR is central to scaling SaaS and subscription-based companies successfully.
