What is MRR and how is it calculated?
MRR (Monthly Recurring Revenue) is the total contracted revenue a subscription business expects to repeat each month. The simplest formula is MRR = Active Customers × Average Monthly Subscription Price (ARPA). Annual plans are normalised by dividing the yearly amount by 12; setup fees, consulting and one-off sales are excluded from MRR.
The MRR × 12 = ARR relationship
MRR and ARR are the same revenue on two time scales: ARR = MRR × 12. The monthly view drives operational decisions — campaigns, pricing, team capacity — while the annual view supports planning, budgeting and investor communication. For the relationship to hold, MRR must be normalised so every billing cycle is expressed monthly. Use the ARR Calculator to see the annual side.
Tracking MRR as a single total is not enough. Breaking it into New MRR, Expansion MRR, Contraction MRR and Churned MRR shows where growth comes from and where it leaks. Net New MRR = New + Expansion − Contraction − Churned is the most honest indicator of growth quality.
Worked example: MRR for a SaaS with 500 customers
Say your product has 500 active customers: 400 on an $80/month Pro plan and 100 on a Business plan billed at $1,200 per year. Monthly plans contribute 400 × 80 = $32,000. Annual plans are normalised: 1,200 / 12 = $100, so 100 × 100 = $10,000. Total MRR = $42,000 and ARR = 42,000 × 12 = $504,000. If the same month also produced $6,000 of setup and training revenue, that amount stays out of MRR.
In the same example, if the month brought $2,500 new MRR, $1,800 expansion, $600 contraction and $1,400 churn, then Net New MRR = 2,500 + 1,800 − 600 − 1,400 = $2,300. MRR moves from $42,000 to $44,300, roughly 5.5% monthly growth. Without that breakdown, a single total hides the months where churn is simply masked by new sales.