Definition
Monthly Recurring Revenue (MRR) is the predictable, normalized revenue a subscription business earns each month. It's the foundation metric for SaaS and subscription businesses.
MRR Components
- New MRR: Revenue from new customers acquired this month.
- Expansion MRR: Additional revenue from existing customers (upgrades, add-ons).
- Contraction MRR: Revenue lost from existing customers (downgrades).
- Churned MRR: Revenue lost from customers who cancelled.
Net New MRR = New + Expansion − Contraction − Churn
How to Calculate It
MRR = Sum of all monthly subscription revenue, normalized to a monthly amount. If a customer pays $1,200/year, that's $100/month in MRR. If another pays $50/month, that's $50. Add them up across every active subscriber.
For usage-based pricing, use the trailing average or contracted minimum as your MRR figure. The goal is a number you can rely on repeating next month.
Why It Matters
MRR is the best predictor of a subscription business's health. It's more reliable than total revenue (which includes one-time payments) and more actionable than ARR (which smooths out monthly changes). Investors look at MRR growth rate as a primary indicator of product-market fit.
Example
A SaaS company starts the month with $80K in MRR. They add $8K in new MRR from 16 new customers, $3K in expansion MRR from upgrades, lose $1K to downgrades (contraction), and $2K to cancellations (churn). Net New MRR = $8K + $3K − $1K − $2K = $8K. Ending MRR is $88K — a 10% month-over-month growth rate. At that pace, they'll cross $100K MRR within three months.
What Good Looks Like
- Early-stage SaaS: 15–20% month-over-month MRR growth is strong.
- Growth-stage: 5–10% monthly growth with improving net revenue retention.
- Mature SaaS: 2–5% monthly growth, with expansion MRR exceeding churned MRR.
The most important signal is the ratio of expansion MRR to churned MRR. When expansion consistently exceeds churn, you have negative net churn — the holy grail of subscription businesses. It means your existing customer base generates more revenue each month even without a single new signup.
Common Mistakes
Including one-time fees (setup charges, consulting hours, hardware sales) in MRR is the most frequent error. MRR should only include predictable, recurring amounts. One-time revenue inflates the number and gives a false sense of momentum. Similarly, counting annual contracts at their full value in the month they close — rather than dividing by 12 — overstates growth and makes churn calculations unreliable.
How CentSight Helps
CentSight calculates MRR and all its components automatically from your QuickBooks data. Track new, expansion, contraction, and churned MRR in real time. Ask: “What's our MRR growth rate over the last 6 months?” or “How much MRR did we lose to churn this quarter?”