How to calculate MRR
Monthly Recurring Revenue (MRR) is the total predictable revenue your SaaS earns from active subscriptions each month. Every subscription is normalized to a monthly amount so you get one comparable number regardless of billing interval.
In practice, most SaaS companies have multiple plans, billing intervals, and coupons. The component form captures what drives MRR change each month:
| Variable | What it captures |
|---|---|
| New MRR | Revenue from first-time subscriptions by new customers |
| Expansion MRR | Revenue increase from upgrades, add-ons, or seat additions by existing customers |
| Reactivation MRR | Revenue from customers who previously canceled and returned |
| Churned MRR | Revenue lost from customers who canceled all subscriptions |
| Contraction MRR | Revenue decrease from downgrades or partial cancellations |
Worked example: 200 customers across 3 plans
A SaaS company has 200 paying customers on three plans:
| Plan | Customers | Price | Monthly MRR |
|---|---|---|---|
| Starter | 80 | $29/mo | $2,320 |
| Pro | 100 | $79/mo | $7,900 |
| Enterprise | 20 | $2,388/yr | $3,980 |
| Total | 200 | $14,200 |
The enterprise plan is billed annually at $2,388/year, so each customer contributes $199/month to MRR. This normalization is what makes MRR useful — you can compare monthly and annual plans on the same scale. The resulting ARR is $14,200 × 12 = $170,400.
What counts as MRR (and what doesn’t)
Counts as MRR
- Monthly subscriptions (at face value)
- Annual plans (÷ 12)
- Quarterly plans (÷ 3)
- Recurring add-ons and seat charges
- Amounts after active coupon/discount
Does NOT count as MRR
- One-time setup or implementation fees
- Usage-based overages (not predictable)
- Free trials with no payment method
- 100% discount coupons ($0 effective price)
- Refunds and credit notes
The most common MRR mistake
Booking the full annual payment as one month’s MRR. A customer pays $1,200 upfront for an annual plan. Your bank account shows $1,200 — but your MRR from that customer is $100/month, not $1,200.
This mistake inflates MRR by up to 12× in the month of payment, then shows zero for the next 11 months. It creates a sawtooth pattern that makes every downstream metric unreliable — churn rate, retention, and growth all inherit the distortion.
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