Monthly recurring revenue (MRR)

Before you rely on it

What to check

One-off fees, professional services and usage overages all stay out.

The common error

Where people go wrong with monthly recurring revenue (MRR)

Including implementation revenue. Growth looks real, the base does not repeat, and the following quarter arrives with a hole that nobody forecast.

Worked through

Monthly recurring revenue (MRR) in plain numbers

A subscription company starts the month with $10,000 in MRR. New customers add $1,500. Existing customers upgrade for another $500. Cancellations remove $700 and downgrades remove $200. Ending MRR is $10,000 + $1,500 + $500 − $700 − $200, or $11,100. Net new MRR is $1,100, and the implied ARR is $133,200. Annual plans are normalized: a $1,200 yearly subscription contributes $100 a month, not $1,200 in the month it is paid. One-time setup fees do not count. Tracking the four movements separately shows whether growth comes from selling or from keeping and expanding.

Easily confused

Monthly recurring revenue (MRR) and its neighbours

MRR is not revenue, cash collected or bookings. Revenue follows accounting recognition and can include one-time items. Cash collected depends on billing terms, so an annual prepayment lifts cash in one month. Bookings measure contract value signed. MRR normalizes recurring charges to a month. It is also not ARR, which is MRR times twelve, or ARPU, which is MRR per customer. Net new MRR, expansion MRR, contraction MRR and churned MRR are the movements that reconcile one month's MRR to the next.

In real decisions

Where monthly recurring revenue (MRR) turns up

Subscription companies run their businesses on it. Teams track MRR growth, churn and expansion in weekly reviews; investors and lenders use it to gauge scale and stability. Founders forecast hiring and cash from it. Finance sets targets by it and sales compensation may follow it. Comparing MRR by plan, channel or cohort shows which parts of the business work best.

Know the edges

Where monthly recurring revenue (MRR) stops being reliable

The definition depends on policy choices about discounts, free trials, usage fees and multi-month contracts; companies differ, so two MRR figures are not always comparable. It ignores profitability and cash. A single large customer can distort it. Seasonal businesses may see swings. Document the policy and apply it consistently, and reconcile it to accounting revenue periodically.

Quick answers

What people ask about monthly recurring revenue (MRR)

How do I count annual plans? Divide the annual price by twelve. A $1,200 plan adds $100 a month. Count it in the month it starts, and again each month it remains active.

Should free trials count? No. Count revenue from paying customers only. Trials become MRR once they convert.

What are expansion and contraction MRR? Expansion is added revenue from existing customers through upgrades or more seats. Contraction is revenue lost through downgrades. Together with churn and new MRR they explain the month's change.

What is ARPU? Average revenue per user, which is MRR divided by the number of paying customers. It shows the typical size of an account and helps track pricing changes.

How do I track MRR month to month? Keep a table of starting MRR, new, expansion, contraction and churned amounts, and reconcile the ending figure to billing. Note any policy changes.

How does MRR relate to cash in the bank? Not directly. Customers may pay annually or late, and refunds and fees intervene. MRR describes the normalized subscription run rate, and cash follows billing and collection.