What is Monthly Recurring Revenue?
Formula
MRR = Σ (monthly-normalised plan amount × quantity + recurring add-ons − active discounts)
- monthly-normalised amount
- Plan price converted to a monthly figure: annual ÷ 12, quarterly ÷ 3, monthly unchanged
- quantity
- Seats or units on the subscription, where the plan is priced per unit
- active discounts
- Coupons and percentage discounts currently applied; a 100% discount removes the customer from MRR entirely
Worked example
A mixed billing book on the last day of the month: monthly, annual and per-seat plans, with one discounted account.
| Step | Value |
|---|---|
| 1180 customers on $49/month | $8,820.00 |
| 240 customers on $588/year (÷ 12) | $1,960.00 |
| 312 customers on $99/quarter (÷ 3) | $396.00 |
| 4Per-seat add-ons, 310 seats at $9 | $2,790.00 |
| 5Active discounts | −$430.00 |
| 6MRR | $13,536.00 |
| 7One-off implementation fees this month | excluded |
| 8Metered usage overage this month | excluded |
Result
MRR is $13,536. The $6,200 of implementation fees billed the same month is real cash and real revenue, but it is not recurring, so including it would report a run rate the business does not actually have next month.
MRR is a run rate, not an accounting number
MRR answers one question: if nothing changed, what would this business bill in a month? That is a forward-looking normalisation of contracts you currently hold, which is why it has no standing under GAAP or IFRS and why no auditor will ever sign it. Recognised revenue and MRR routinely disagree in the same month, and both are correct — they are measuring different things.
The practical consequence is that MRR is whatever your company defines it to be. That freedom is fine as long as the definition is written down, applied to history as well as to this month, and disclosed whenever the figure leaves the building. It stops being fine the moment the definition drifts, because a series computed on shifting rules is not a trend.
What goes in, and what does not
In: recurring subscription fees, recurring per-seat and per-unit charges, recurring add-ons, and committed platform fees. Out: one-off setup and implementation fees, professional services, hardware, refunds, and metered usage that varies month to month.
Usage is the contested one. Consumption revenue is real and often large, but it is not contracted and it is not stable, so folding it into MRR turns a run rate into a forecast. The convention that survives scrutiny is to report the committed subscription component as MRR and report usage separately — if usage is material and reliably recurring, publish it as its own line and let readers add the two themselves.
Normalising annual contracts
An annual contract enters MRR at one twelfth of its value in every month it is active, regardless of when the cash arrived. A $12,000 annual deal signed on 3 February is $1,000 of MRR in February and $1,000 in each of the eleven months after it — not $12,000 in February. Booking the full amount into the month of signature is the single most common way a startup's MRR chart acquires spikes that no customer experienced, and it makes growth rate unreadable for a year afterwards.
The counterpart error is treating cash and MRR as the same ledger. They are decoupled on purpose: subscriptions form a normalised accrual view, charges and refunds form the cash view, and a business with heavy annual prepayment will see the two diverge substantially. Reconciling them is useful; merging them is not.
Trials, delinquency and discounts
Three edges decide more of your MRR than the plan table does. Trials do not count until the first successful payment, whether or not a card is on file — counting trialists inflates MRR and then produces a phantom churn spike when they expire. Delinquent accounts need a stated window: a failed payment is not a cancellation on day one, but an account that has not paid in sixty days is not revenue either. Most subscription analytics tools, Bastle included, hold delinquent accounts in MRR for a configurable window and then treat them as churn. Discounts reduce MRR while active, and a 100% coupon removes the account entirely — which means applying one to a paying customer registers as churn, and its expiry registers as expansion.
Reading MRR as movements, not as a level
The level tells you almost nothing on its own. Two businesses at $50,000 MRR that both grew $4,000 last month can be in completely different health: one added $4,500 of new business and lost $500, the other added $19,000 and lost $15,000. The second is running a treadmill and will stall the moment acquisition slows. Break every month into new, expansion, contraction, churned and reactivation, and read net new MRR and the quick ratio alongside the total.
Where MRR goes wrong
- Recognising an annual contract as a single month of MRR at signature. The spike is not revenue the business earned that month, it distorts every growth-rate reading for the following twelve months, and it is the most common MRR error in early-stage reporting.
- Including one-off charges — setup fees, implementation, professional services — in MRR. They inflate the run rate with money that will not repeat, so the following month reads as a decline nobody can explain.
- Counting trials or free plans before a first successful payment. MRR rises with no cash behind it, and the correction arrives later disguised as churn.
- Having no stated delinquency window. Without one, a failed card either removes revenue instantly or holds it forever, and the choice tends to get made accidentally by whichever tool is being used.
- Changing the MRR definition without restating history. Any definitional change — adding usage, moving trials, altering the delinquency window — must be applied backwards to the whole series, or the trend measures the definition rather than the business.
- Reporting MRR without its movement breakdown. A total that grew tells you the direction; only new, expansion, contraction and churn tell you whether it is durable.
Typical ranges
There is no benchmark for MRR level — it is a size measure, not a quality one, and a $20,000 and a $2m business can be equally healthy. What is worth comparing is the shape underneath it: the split between new and expansion revenue, and the ratio of revenue gained to revenue lost. Those are covered by the quick ratio and net revenue retention rather than by the MRR figure itself.
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.
Annual 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 moreAverage Revenue Per User (ARPU)
Average revenue per user (ARPU) is monthly recurring revenue divided by the number of active paying customers, giving the blended monthly value of a single account. It is frequently written ARPA — average revenue per account — and the distinction matters for any product where one account contains several seats, because dividing by seats and dividing by accounts produce different numbers and answer different questions.
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 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 moreContraction MRR
Contraction MRR is recurring revenue lost from customers who stayed but now pay less — downgrades to a cheaper plan, removed seats, dropped add-ons and newly applied discounts. It is distinct from churned MRR, which comes from customers who left entirely, and keeping the two separate matters because a shrinking account is a retained relationship with a product or pricing problem, while a churned one is gone.
Learn moreMRR Growth Rate
MRR growth rate is the percentage change in monthly recurring revenue from one period to the next, calculated as current MRR divided by prior MRR, minus one, times one hundred. Reported monthly it is the standard pace measure for a subscription business, and it is compounding: 8% a month is roughly 151% a year, not 96%, because each month's growth applies to the base the previous month produced.
Learn moreMRR: frequently asked questions
How do you calculate MRR?
Should annual contracts be included in MRR?
Does usage-based revenue count toward MRR?
What is the difference between MRR and revenue?
How should failed payments affect MRR?
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