Quick answer
Monthly recurring revenue (MRR) is the predictable subscription revenue a business earns per month, with every active plan converted to its monthly value and one-off charges left out.
Formula: MRR = Σ monthly value of every active subscription · net new MRR = new + expansion + reactivation − contraction − churned MRR
What is MRR?
Monthly recurring revenue (MRR) is the subscription revenue you can count on each month. It is a run rate, not a bank balance: every active plan is converted to what it is worth per month, and anything that will not repeat is left out.
Normalise before you add up:
- Annual plans: divide by 12. A $1,200 yearly plan is $100 of MRR, even though the cash arrived in one payment.
- One-off charges: set-up fees, services and overage invoices are revenue but not MRR.
- Discounts: use the price the customer actually pays every month. A permanent 20% discount reduces MRR; a one-month promo does not change it after that month.
- Trials: a free trial is $0 MRR until it converts.
- Failed payments: decide a rule (for example, a subscription leaves MRR after the final retry fails) and keep it.
The five MRR movements
MRR changes for five reasons. Tracking them separately tells you why it moved:
| Movement | What it is |
|---|---|
| New MRR | First subscriptions from new customers |
| Expansion MRR | Upgrades, extra seats or add-ons from existing customers |
| Reactivation MRR | Customers who had cancelled and came back |
| Contraction MRR | Downgrades and fewer seats |
| Churned MRR | Cancelled subscriptions |
A worked month
Sample figures for one month:
| MRR | |
|---|---|
| Opening MRR | $40,000 |
| + New | $3,000 |
| + Expansion | $1,500 |
| + Reactivation | $200 |
| − Contraction | $600 |
| − Churned | $1,800 |
| Closing MRR | $42,300 |
Net new MRR = 3,000 + 1,500 + 200 − 600 − 1,800 = $2,300, so MRR grew 2,300 ÷ 40,000 = 5.75% (see month over month growth). The headline looks healthy, but churned MRR ($1,800) ate 60% of new MRR. Fixing churn would be worth almost as much as doubling new sales. The same movements also give you net revenue retention.
Common mistakes
- Counting annual invoices as one month's MRR. It creates a spike in the month of billing and a cliff later.
- Including one-off fees. MRR should only move when recurring value changes.
- Mixing currencies at daily rates. Pick a fixed rate per reporting period so exchange rates do not look like growth.
- Only reporting the total. A flat MRR can hide strong sales and heavy churn. Show the movements.
MRR in your analytics
MRR is calculated in your billing system. To see which channels and product behaviours lead to subscriptions, send payment events from your server to TapCub (for example subscription_started with the plan and its monthly value), then compare them by source in funnels and cohorts. Related reading: SaaS metrics and revenue tracking.
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Data Engineer
Writes about event design, data quality, and collection workflows, with verifiable implementation methods for reliable analytics.