What is MRR Growth Rate?
Formula
MRR Growth Rate = ((MRR at period end ÷ MRR at period start) − 1) × 100
- MRR at period end
- Monthly recurring revenue on the last day of the period, on the same inclusion rules as the opening figure
- MRR at period start
- MRR on the first day of the period — the same figure as the previous period's closing value
Worked example
A business growing steadily, shown monthly and then compounded over a year.
| Step | Value |
|---|---|
| 1MRR at 1 March | $60,000 |
| 2MRR at 31 March | $64,000 |
| 3Net new MRR | $4,000 |
| 4Monthly growth rate | 6.67% |
| 5Compounded over 12 months (1.0667^12) | ×2.16 |
| 6Implied MRR after a year at that pace | $129,600 |
| 7Naive 12 × 6.67% annualisation | 80% |
Result
Monthly growth is 6.67%, which compounds to 116% over a year, not the 80% a straight multiplication suggests. The gap between the two is entirely the compounding, and it widens the faster you grow.
Compounding is the whole point
Multiplying a monthly rate by twelve understates annual growth, and the error grows with the rate. At 3% monthly the compound annual figure is 43% against a naive 36%. At 6.67% it is 116% against 80%. At 10% it is 214% against 120%. Anywhere growth is being projected forward — hiring plans, runway models, fundraising materials — the compound figure is the correct one, and the naive one is off by a margin that gets embarrassing at the top end.
The formula is (1 + monthly rate) raised to the power of twelve, minus one. It is worth computing properly, because the same compounding runs in the other direction on churn, and a business that annualises growth naively usually annualises churn naively too.
Growth of what, exactly
"Growth rate" is used for at least four different measurements, and they do not agree.
- MRR growth — period-end run rate against period-start run rate. The default for subscription businesses.
- ARR growth — the same measurement annualised; identical percentage, larger absolute numbers.
- Revenue growth — recognised revenue this period against the last. Includes one-off and services revenue, and lags run rate for any growing company.
- Customer growth — logo count. Diverges from revenue growth whenever ARPU is moving.
A company adding customers while ARPU falls can post healthy customer growth and flat MRR growth simultaneously. Name which one you are quoting.
Growth rate decays, and that is normal
Percentage growth is a fraction with a growing denominator, so the same absolute performance produces a smaller percentage every month. Adding $4,000 to a $60,000 base is 6.67%; adding $4,000 to a $200,000 base is 2%. A business can be accelerating in absolute terms while its growth rate declines, and reading the percentage alone will report a slowdown that is not happening.
This is why growth rate should always be read next to net new MRR. The percentage tells you the pace relative to size; the absolute figure tells you whether the machine is producing more. The two together are legible; either alone is not.
Small bases produce meaningless percentages
At $4,000 MRR, one $800 customer is a 20% growth month. Nothing about that number generalises, and averaging it into a trend produces a projection that will not survive contact with the next quarter. Below roughly $20,000 MRR, report absolute net new alongside the percentage and treat single months as noise. The same caution applies to any month containing a single large annual contract, which lands as a step change in run rate rather than as a rate of growth.
What is driving it
Growth rate is an outcome, so acting on it requires decomposing it. Split net new MRR into new, expansion, reactivation, contraction and churn: growth driven by new business has an acquisition-cost ceiling, growth driven by expansion is close to free and compounds on a larger base every month, and growth that survives only because churn happened to be quiet is not growth you can plan on. A stable headline growth rate can hide a shift between those sources entirely, and the shift matters more than the rate.
Where MRR Growth Rate goes wrong
- Annualising by multiplying the monthly rate by twelve. Growth compounds: 6.67% a month is 116% a year, not 80%, and the understatement widens as the rate rises.
- Reading declining percentage growth as a slowdown without checking absolute net new MRR. A larger denominator lowers the percentage even when the business is adding more revenue every month than it used to.
- Quoting a growth rate without saying what grew. MRR, ARR, recognised revenue and customer count produce different figures, and they diverge most sharply exactly when a business is changing pricing or mix.
- Computing growth on a base too small to mean anything. At $4,000 MRR a single customer can be a 20% month, and a trend built from those percentages projects nothing.
- Comparing your monthly growth to an annual benchmark, or the reverse. It is the same 12x class of error as mixing monthly and annual churn, and it is just as easy to miss in a deck.
Typical ranges
Venture guidance commonly treats roughly 10% month-over-month as strong for an early-stage SaaS business and 15–20% as exceptional, with expected rates falling steadily as the revenue base grows — a company at $10m in run rate is not expected to hold the pace it managed at $100,000. These are investor conventions rather than measured industry figures, and they are drawn from the venture-backed segment specifically, so a bootstrapped business should not read them as a target.
Source: Venture convention, not an empirical study
Related
Metrics that move with this one
No metric explains a business on its own. These are the figures that qualify, offset or explain MRR Growth Rate.
Monthly Recurring Revenue (MRR)
Monthly recurring revenue (MRR) is the monthly-normalised value of every active paid subscription at a point in time: monthly plans at face value, quarterly plans divided by three, annual plans divided by twelve, plus recurring add-ons and less active discounts. It is a snapshot of contracted run rate rather than an accounting figure, so it deliberately excludes one-off charges, setup fees, usage overages and refunds, and it has no definition in GAAP or IFRS.
Learn moreNet New MRR
Net new MRR is the change in monthly recurring revenue over a period, calculated as new plus expansion plus reactivation MRR, minus contraction and churned MRR. It is the single figure that reconciles opening MRR to closing MRR, and its value comes less from the total than from the five components underneath it, which distinguish a business growing from acquisition, from expansion, or merely replacing what it loses.
Learn moreAnnual Recurring Revenue (ARR)
Annual recurring revenue (ARR) is the annualised value of a subscription business's contracted revenue, calculated in practice as current monthly recurring revenue multiplied by twelve. It is a run rate — a statement of what the next twelve months would produce if nothing changed — not a record of what the business earned in the past twelve months, and the two figures differ sharply for any company that is growing or churning quickly.
Learn moreExpansion MRR
Expansion MRR is the additional monthly recurring revenue generated by existing customers in a period through upgrades, seat additions, add-on purchases and price increases — revenue growth from accounts already on the books rather than from new ones. It is measured as a positive movement against the prior period's MRR, excludes anything from customers acquired in the period, and is the component that allows net revenue retention to exceed 100%.
Learn moreChurn Rate
Churn rate is the share of customers or recurring revenue lost over a period, most often calculated as the number of customers who cancelled during a month divided by the number active at the start of it. There is no single correct churn rate: customer churn and revenue churn, gross and net, and start-of-period and average denominators all produce different figures from identical data, so a churn rate is only interpretable alongside the definition that produced it.
Learn moreSaaS Quick Ratio
The SaaS quick ratio divides new plus expansion MRR by churned plus contraction MRR, showing how much recurring revenue a company adds for every unit it loses; above 1 the business is growing net of losses. It shares a name with the accounting quick ratio — a balance-sheet liquidity measure of current assets to current liabilities — but the two are unrelated, use different inputs and answer different questions.
Learn moreMRR Growth Rate: frequently asked questions
How do you calculate MRR growth rate?
How do I annualise a monthly growth rate?
What is a good monthly MRR growth rate?
Why is my growth rate falling while revenue is rising?
Should I measure growth on MRR or on revenue?
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