What Is MRR and How Do You Calculate It? Monthly Recurring Revenue, MRR Movements and a Worked Example

What is MRR? (Short answer)

MRR (Monthly Recurring Revenue) is the monthly value of the revenue a subscription business expects to collect again every month from its active subscriptions. It is the core growth metric for SaaS companies, mobile apps, membership sites and e-commerce brands that sell subscription boxes.

Formula: MRR = Σ (Plan's monthly price × Active accounts on that plan). With a single plan, MRR = Active accounts × ARPA (average revenue per account). MRR is not an invoice total or the cash you collected this month; it is a snapshot of the monthly revenue power of your current subscriber base.

The annual equivalent of MRR is ARR: ARR = MRR × 12. All figures in this article are illustrative and follow one example company; to try your own numbers, use the MRR Calculator.

How to calculate MRR: a step-by-step example

The example company is a B2B SaaS with 215 active accounts at the start of October and three plans. The calculation is simply each plan's monthly value multiplied by its account count, then summed.

Total: $7,350 + $3,600 + $2,000 = $12,950 MRR. ARPA is $12,950 / 215 ≈ $60 and ARR is $12,950 × 12 = $155,400. The same month the company invoiced $500 in setup and training fees; because they do not repeat, they stay out of MRR.

• Starter plan ($49/month): 150 accounts × $49 = $7,350
• Pro plan ($69/month or $720/year prepaid; all 60 Pro accounts are on annual billing → monthly value $720 / 12 = $60): 60 × $60 = $3,600
• Enterprise plan ($400/month contract): 5 accounts × $400 = $2,000
• One-off setup/training ($500): not included in MRR

What counts toward MRR, and what doesn't?

The rule is simple: contracted revenue that will repeat next month even if the customer does nothing is MRR. Revenue that happens once, or whose amount is uncertain every month, is not.

• Included: monthly subscription fees; the monthly value of annual, semi-annual and quarterly plans; recurring add-ons and extra seat packs
• Included (at the price paid): discounted subscriptions — record what the customer actually pays, not the list price
• Excluded: setup, onboarding, training, consulting and other one-off services; one-off product sales
• Excluded: free-trial users (they become new MRR on their first payment) and free plans
• Track separately: usage-based overage — the contracted base fee goes into MRR, variable usage on its own line
• Note: a cancellation that is paid through the end of the term stays in MRR until it takes effect, then leaves as churned MRR

How do annual, quarterly and weekly plans convert to MRR?

MRR only makes sense when every billing period is normalised to a month. Booking the full value of an annual prepayment in the month it was paid makes MRR spike, then appear to fall for the next 11 months.

In October, 8 Pro accounts renewed annually and $5,760 (8 × $720) hit the bank. Those accounts were already in MRR, so their contribution did not change (8 × $60 = $480). The cash report makes October look great; MRR correctly says 'no change'.

• Annual plan: Monthly value = Annual price / 12 ($720 → $60)
• Semi-annual plan: price / 6; quarterly plan: price / 3
• Weekly plan: Weekly price × 52 / 12 ($12/week ≈ $52/month). Multiplying a week by 4 understates MRR by about 8%
• Multi-year contract: divide the annual value by 12; never show a 2–3 year prepayment in one month

What are MRR movements? New, expansion, contraction and churned MRR

Total MRR alone does not show where growth comes from or where revenue leaks. That is why each month's change is split into five movements to build an 'MRR bridge'.

The example company's October movements: 18 new Starter accounts (18 × $49 = $882) and 2 new Pro accounts (2 × $60 = $120) give new MRR of $1,002. Ten accounts upgraded from Starter to monthly Pro (10 × $20 = $200) and one enterprise customer bought an extra seat pack ($150): expansion $350. Two previously churned Starter accounts came back: reactivation $98. One enterprise customer renegotiated from $400 to $250 ($150) and 6 accounts removed seats (6 × $15 = $90): contraction $240. Nine Starter accounts cancelled ($441) and one Pro account did not renew ($60): churn $501.

• New MRR: MRR from accounts paying for the first time — $1,002
• Expansion MRR: upgrades, extra seats or modules from existing accounts — $350
• Reactivation MRR: previously churned accounts that return — $98
• Contraction MRR: downgrades and seat reductions from existing accounts — $240
• Churned MRR: MRR from accounts that cancelled or did not renew — $501

How do you calculate net new MRR and MRR growth rate?

Net new MRR = New + Expansion + Reactivation − Contraction − Churn. In the example: $1,002 + $350 + $98 − $240 − $501 = $709. The bridge closes like this: starting MRR $12,950 + $709 = ending MRR $13,659. The month ends with 227 active accounts (215 + 20 new + 2 returning − 10 churned); ARPA ≈ $60 and ARR is $13,659 × 12 = $163,908.

Monthly MRR growth rate = Net new MRR / Starting MRR = $709 / $12,950 ≈ 5.5%. Over several months, use compound monthly growth rate (CMGR) instead of averaging individual months: CMGR = (Ending MRR / Starting MRR)^(1 / months) − 1. If MRR was $9,700 at the end of April and $13,659 at the end of October, the 6-month CMGR is ($13,659 / $9,700)^(1/6) − 1 ≈ 5.9%.

Is your MRR growth healthy? Quick Ratio, MRR churn and NRR

5.5% monthly growth looks good, but three more ratios from the same bridge reveal its quality — and expose months where new sales are masking churn.

In the example, growth comes from new sales while the existing base shrinks every month (monthly NRR below 100%). The month new sales slow down, MRR starts to fall. The priority is to find the causes of churn and contraction — first-90-day activation and Starter-plan churn. You can track churn with the Churn Rate Calculator and NRR with the NRR Calculator.

• SaaS Quick Ratio = (New + Expansion + Reactivation) / (Contraction + Churn) = $1,450 / $741 ≈ 2.0. In this ratio, popularised by investor Mamoon Hamid, 4 or above is usually considered efficient growth; below 1 means shrinking
• Gross MRR churn = (Contraction + Churn) / Starting MRR = $741 / $12,950 ≈ 5.7% (monthly)
• Net MRR churn = (Contraction + Churn − Expansion) / Starting MRR = $391 / $12,950 ≈ 3.0%; when expansion exceeds losses you have negative churn
• Monthly NRR = (Starting + Expansion − Contraction − Churn) / Starting = $12,559 / $12,950 ≈ 97.0%
• Logo (customer) churn = Churned accounts / Starting accounts = 10 / 215 ≈ 4.7%; it differs from revenue churn, so track both

How do you increase MRR? What each lever is worth

MRR grows four ways: more new accounts, less churn and contraction, more expansion from existing accounts, and price. Work out your priority from your own MRR bridge rather than by instinct. The scenarios below extend the example company's October bridge over 12 and 24 months: new and reactivated MRR stay at a fixed amount per month, while expansion, contraction and churn continue as a share of MRR. On the current path MRR reaches about $20,178 in 12 months and $25,181 in 24.

The result: in year one more new sales beats less churn, but by month 24 the order flips, because the churn rate applies to a growing MRR while new sales stay flat. If new sales and reactivation stopped entirely, the same company's MRR would fall to about $8,964 in 12 months; that is what 97.0% monthly NRR means. The scenarios are not equally hard and exclude their costs, so write the cost of each next to it and check new-sales efficiency with the CAC Calculator.

• New MRR up 20% ($1,002 → $1,202 a month): +$200 in month 1, +$2,043 by month 12, +$3,457 by month 24
• Churned MRR down 25% ($501 → $376 a month): +$125 in month 1, +$1,727 by month 12, +$3,706 by month 24
• Expansion MRR up 50% ($350 → $525 a month): +$175 in month 1, +$2,459 by month 12, +$5,372 by month 24
• A 5% price rise on the existing base: $12,950 × 5% = $648, a one-off step (assuming it causes no churn). It changes the base, not the growth rate, so watch churn for two months afterwards
• Fix the leak first: if Quick Ratio is below 4, find the plan and signup month where churn concentrates before raising the new-sales budget

How do discounts, free trials and exchange rates affect MRR?

Discounts: 20 Starter accounts paying 25% less for 3 months add 20 × $36.75 = $735 to MRR, not $980. When the discount ends, the $245 increase shows up as expansion in movement reports; label it 'discount ended' so it is not confused with a real upsell.

Trials: accounts on a free trial are not in MRR; they become new MRR on their first payment. Track trials with trial-to-paid conversion rate instead. Refunds: a refunded subscription leaves as churned MRR in the month of the refund; some tools rewrite past months instead, so document which method you use.

Exchange rates: if you bill in several currencies and report in one, FX moves MRR without a single new customer. €5,000 of MRR is $5,400 at an illustrative rate of 1.08 and $5,600 at 1.12 — a 3.7% 'growth' with no new sales. Report MRR in billing currency and at a constant (start-of-period) rate, and show the FX effect on its own line.

How do you calculate MRR for an e-commerce subscription?

MRR is not SaaS-only. A brand selling coffee, pet food or beauty subscriptions uses the same formula: MRR = Σ (active subscriptions × monthly value). With 800 subscribers on a $15 monthly box and 300 on a $40 box shipped every 3 months, MRR = 800 × $15 + 300 × ($40 / 3) = $12,000 + $4,000 = $16,000.

Two differences apply in e-commerce. First, customers who 'pause' their subscription leave MRR during the pause and return as reactivation. Second, MRR is a revenue metric, not profit: in subscription models with high product, shipping and packaging costs, make decisions on contribution margin.

What's the difference between MRR, ARR, revenue and cash?

These four are often confused and produce four different numbers for the same month. In the example, ending MRR is $13,659 while far more cash came in through annual renewals and setup fees.

• MRR: the monthly revenue power of the subscriber base (normalised, one-offs excluded) — $13,659
• ARR: MRR × 12 — $163,908. Used for planning and investor reporting; see ARR vs MRR for the details
• Revenue (accounting): all recurring and one-off revenue; annual prepayments are recognised over the service period
• Cash collected: money that hit the bank this month; annual prepayments and setup fees can make it very different from MRR

The most common MRR mistakes

MRR errors usually come from definitions, not the formula. Writing the definitions down once and applying them the same way every month is what makes the number trustworthy.

• Booking the full annual prepayment in the month it was paid
• Adding setup, training, consulting or one-off product sales to MRR
• Counting discounted accounts at list price
• Counting trial users or accounts with failed payments as active indefinitely
• Mistaking FX movements for growth; not comparing at a constant rate
• Watching only total MRR instead of the new / expansion / contraction / churn breakdown