MRR

Monthly Recurring Revenue (MRR) is a metric used by subscription-based businesses to measure predictable recurring revenue on a monthly basis. It aggregates the revenue from all active recurring subscriptions in a given month and is typically adjusted for discounts, refunds, and proration.

Calculation and components: MRR is the sum of the monthly revenue from each active customer. It is commonly broken down into: New MRR (revenue from new sign-ups or plan upgrades in the month), Expansion MRR (upsells or add-ons to existing customers), Contraction MRR (downgrades), and Churn MRR (revenue lost from cancellations). Net MRR change equals New plus Expansion minus Contraction and Churn. Some analyses distinguish Gross MRR (before churn) from Net MRR (after churn). Annual Recurring Revenue (ARR) is twelve times the MRR.

Uses and limitations: MRR supports forecasting, budgeting, and performance evaluation for subscription businesses, including pricing decisions and retention strategies. Limitations include the exclusion of non-recurring revenue, potential distortion from proration or promotional pricing, and the need for consistent definitions across teams. Currency effects and seasonal patterns can also affect MRR trends.

Best practices: define MRR consistently, track it by customer segment and plan, and monitor Net MRR Growth. Use MRR alongside ARR and related metrics such as churn rate and customer lifetime value to guide strategy, pricing decisions, and operational priorities.