MRR

Business
About 1 min read

The sum of recurring revenues generated each month in a subscription business. Calculated by normalizing regular subscription payments while excluding one-time fees, it is a key metric demonstrating the business's predictability and growth potential.

Also known as
Monthly Recurring RevenueMonthly Recurring Revenue

Detailed explanation

MRR (Monthly Recurring Revenue) refers to the total sum of 'recurring revenue' stably generated every month in SaaS and subscription-based businesses. Rather than simply being the cash flow deposited in a specific month, it is a normalized figure calculated by dividing annual or quarterly payments equally into monthly increments. MRR increases through new customers (New), upgrades from existing customers (Expansion), and reactivated customers (Reactivation), and decreases due to cancellations (Churn) and downgrades (Contraction). 'Net New MRR,' which sums all these fluctuations, acts as a compass for real-time monitoring of the business's actual growth rate and health, serving as a core standard for valuation.

Why It Matters in Tool Selection

When choosing AI-based analytics tools or revenue management solutions, you should check the sophistication of their MRR calculation methods. Checking whether they automatically exclude one-time setup fees or taxes, accurately prorate annual subscribers over 12 months, and reflect upgrade differentials in real time serves as the basis for accurate decision-making.

Checklist for Accurate Measurement

  • Were one-time fees (setup fees, consulting fees) excluded?
  • Is the annual subscription fee divided by 12 and recognized as monthly revenue?
  • Are free trial users excluded from the figure?
  • Is the metric based on net revenue after discounts have been applied?

MRR Calculation Example

If Customer A subscribes to a $100/month plan and Customer B pays for a $1,200/year plan, the MRR for that month is $200. This is because only the $100 corresponding to this month out of Customer B's $1,200 payment is recognized as MRR. If Customer B upgrades to a $1,800 annual plan next month, the increase of $50 ($150 - $100) is classified as 'Expansion MRR.'

Confusing Terms

ARR (Annual Recurring Revenue)

Annual Recurring Revenue calculated by multiplying MRR by 12. It is mainly used when discussing long-term growth trends or enterprise valuation.

Cash Flow

The actual money deposited in the bank account. The difference is that for annual payments, cash comes in all at once, whereas MRR recognizes it by dividing it over 12 months.

Related terms

ARR