Definition: Metric representing the normalized monthly recurring revenue of a subscription business, the fundamental basis for measuring growth and predicting revenue.
— Source: NERVICO, Product Development Consultancy
What is MRR
MRR (Monthly Recurring Revenue) is the metric that normalizes all recurring revenue from a subscription business into a monthly figure. If a customer pays an annual plan of 1,200 euros, their MRR contribution is 100 euros. MRR excludes non-recurring revenue such as one-time setup payments, consulting services, or spot sales. It is the most important financial metric for SaaS businesses because it reflects the health and growth of predictable revenue.
How it works
MRR decomposes into five components. New MRR comes from customers subscribing for the first time. Expansion MRR comes from existing customers upgrading to a higher plan or adding add-ons. Contraction MRR represents reductions from downgrades. Reactivation MRR comes from customers who had canceled and return. Churned MRR is revenue lost from cancellations. The month’s net MRR is the sum of these five components plus the previous month’s MRR.
Why it matters
MRR converts the complexity of multiple plans, billing periods, and add-ons into a single figure comparable month over month. It enables calculating real growth rate, predicting future revenue, and making informed investment decisions. Investors and boards of SaaS companies evaluate business health primarily through MRR and its components.
Practical example
A SaaS product has 200 customers with 40,000 euros MRR. During the month, it gains 15 new customers (new MRR: 3,000 euros), 10 customers upgrade (expansion MRR: 2,000 euros), 5 customers downgrade (contraction MRR: -800 euros), and 8 cancel (churned MRR: -1,600 euros). The end-of-month MRR is 42,600 euros. The net MRR growth rate is 6.5%, projecting an ARR of over 500,000 euros by year end.