MRR

MRR (Monthly Recurring Revenue) is the total predictable revenue your subscription business earns each month, normalized to a monthly value. For monthly subscribers, it is their subscription price. For annual subscribers, it is their annual price divided by 12. MRR is the operational heartbeat of a SaaS business, the metric you check daily.

Why it matters: MRR provides a real-time pulse on business health. It shows whether revenue is growing, flat, or declining on a month-to-month basis. More importantly, MRR decomposition (breaking it into components) reveals the dynamics underneath the top-line number. A company can have flat MRR that masks healthy new sales being offset by equal churn, or it can have growing MRR driven entirely by expansion revenue while new acquisition has stalled. The components tell the story.

MRR components: New MRR is revenue from newly acquired customers. Expansion MRR is additional revenue from existing customers (upgrades, add-ons, increased usage). Contraction MRR is revenue lost from existing customers downgrading. Churned MRR is revenue lost from customer cancellations. Reactivation MRR is revenue from previously churned customers who return. Net new MRR = new + expansion + reactivation - contraction - churned.

How to calculate: sum the monthly subscription value of all active subscriptions. For annual plans, divide by 12. Exclude one-time fees, usage overages that are not predictable, and professional services revenue. Tools like Stripe, ChartMogul, Baremetrics, and ProfitWell (Paddle) automate MRR calculation and decomposition from your billing data.

MRR growth rate: the month-over-month MRR growth rate is one of the most watched SaaS metrics. Early-stage companies should target 15-20% MoM growth. Growth-stage companies target 5-10% MoM. Mature companies target 2-5% MoM. Consistent compound growth is more valuable than spiky growth. A company growing at 10% MoM will roughly 3x its MRR in a year.

Net revenue retention (NRR): this is the percentage of MRR from existing customers that you retain month over month, including expansion and contraction. NRR above 100% means existing customers are growing in value (expansion exceeds contraction + churn). Top SaaS companies achieve NRR of 110-130%, meaning they would grow even with zero new customers. NRR above 100% is the most powerful growth engine in SaaS.

Common mistakes: including one-time revenue or non-recurring fees in MRR. Not normalizing annual plans to monthly values. Looking only at total MRR without decomposing into new, expansion, contraction, and churn. Not tracking MRR by cohort, which hides whether newer customers have different revenue trajectories than older ones.

Practical example: a SaaS company reports $85K MRR. Decomposition shows: $15K new MRR, $8K expansion MRR, $3K contraction, $6K churn. Net new MRR is $14K, and NRR is 98.8% (just below 100%, meaning existing customers are slowly shrinking in value). The team prioritizes building an in-app upgrade prompt and usage-based pricing for power users. Three months later, expansion MRR grows to $14K while churn stays flat, pushing NRR to 104%.