Glossary definition

MRR: What it is and how to calculate monthly recurring revenue 

If you’re running a SaaS business or working in financial operations, you’ve probably come across MRR. But what does MRR stand for– and why does it matter so much to your business? 

Monthly recurring revenue (MRR) is one of the most important metrics for any subscription-based company. It represents the predictable income you earn each month from recurring payments, such as subscriptions, retainers, or ongoing service contracts. Unlike one-off sales or project fees, MRR gives you a stable, consistent view of your revenue and helps you plan with confidence. 

This guide will walk you through what MRR means, how to calculate it accurately, and how to use it to grow your business more strategically. 

Here’s what we discuss:

What is monthly recurring revenue (MRR)? 

In simple terms, monthly recurring revenue (MRR) is the total amount of predictable revenue you can expect to receive from your customers each month based on their subscription payments. 

MRR is a normalised figure, reflecting your monthly earnings, even if customers are billed quarterly or annually.  

For example, if you have 100 customers paying £50 per month, your MRR would be £5,000. 

Because MRR focuses solely on recurring revenue, it provides a consistent method for measuring and tracking your business’s financial performance over time.  

Here’s what’s included—and what isn’t: 

MRR includes: 

• Subscription payments (monthly, quarterly, or annual converted to a monthly value). 

• Revenue from paid plans or recurring retainers. 

• Add-ons or upgrades that recur monthly. 

MRR omits: 

• One-time purchases or setup fees. 

• Trial accounts (until they convert to paid). 

• Refunds or chargebacks. 

Why MRR matters 

Whether you’re a founder, CEO, or finance professional, understanding your MRR gives you a clear view of your company’s financial health. It enables more informed decisions across key areas of your business, from team growth to product development and strategic planning. 

Here are just a few ways MRR supports smarter decision-making: 

• Financial forecasting: predict future cash flow with greater accuracy. 

• Business valuation: a consistent, growing MRR is highly attractive to investors. 

• Growth tracking: monitor whether your revenue is increasing month over month. 

• Resource planning: make informed decisions about hiring, product development, or market expansion. 

For example, if your MRR has increased by 15% over the last three months, that could be a clear sign you’re ready to scale, perhaps by growing your customer success team or rolling out new features. 

How to calculate MRR 

The basic monthly recurring revenue formula is straightforward:  

MRR Formula = Total monthly revenue from all active subscriptions 

However, an accurate monthly recurring revenue calculation requires close attention to billing frequencies, discounts, and changes to subscription plans. 

Here’s a simple example: 

Subscription tier	Number of customers	Monthly price	MRR contribution
Basic	50	£20	£1,000
Pro	30	£50	£1,500
Enterprise	10	£200	£2,000
Total MRR			£4,500

Below are the key steps involved in calculating MRR effectively: 

1. Sum up revenue from each live subscription 

Start by identifying all your active, paying customers. Cancelled or paused accounts should be excluded. 

For example, imagine you have: 

• 10 users on a £25 plan = £250 

• 20 users on a £50 plan = £1,000 

• MRR = £1,250 

Your MRR calculation provides a snapshot of your current, recurring revenue from active subscriptions. 

2. Normalise annual or quarterly payments 

Some customers may be billed quarterly or annually. To calculate MRR accurately, convert these payments into a monthly equivalent. 

For instance, imagine: 

• A customer pays £1,200 annually 

• £1,200 ÷ 12 = £100 MRR 

Remember, MRR reflects when the service is delivered, not when the payment is received. 

3. Include discounts and coupons 

Discounts—temporary promotions or long-term deals—should always be factored into your MRR calculation to reflect actual revenue. 

For example:  

• A customer is on a £100/month plan 

• With a 20% discount, they pay £80 

• MRR = £80 

Temporary discounts should be applied only for the duration of the offer, while permanent discounts should be included consistently each month. 

Types of MRR 

Splitting MRR into three main categories allows you to understand where your revenue is coming from (or going to). These categories include: 

1. New MRR 

New MRR is the revenue you earn from customers who signed up for the first time this month. It’s one of the most evident signs that your marketing and sales efforts are working. 

Formula: 

New MRR = MRR from customers acquired this month 

For example, if five new customers each sign up for a £100 plan, your New MRR is £500. 

Tracking new MRR helps you understand how well your acquisition strategies convert into revenue. 

2. Expansion MRR 

Expansion MRR comes from existing customers who upgrade their plans, add new features, or increase usage. It shows that customers are getting more value from your product and are willing to spend more. 

Formula: 

Expansion MRR = Additional MRR from upgrades or add-ons 

For instance, if a customer upgrades from a £50 plan to a £75 plan, the £25 difference is expansion MRR. 

Growth from expansion is often more cost-effective than acquiring new customers, so it’s a key metric to watch. 

3. Churned MRR 

Churned MRR is the revenue you lose when customers cancel or downgrade their subscriptions. It directly affects your growth and can signal product or customer experience issues that need attention. 

Formula: 

Churned MRR = MRR lost from cancelled or downgraded accounts 

For example, if three customers on £100 plans cancel, your Churned MRR is £300. 

Monitoring churned MRR regularly helps you act early and keep overall MRR heading in the right direction. 

4. Reactivation MRR 

Reactivation MRR is the revenue earned from previously churned customers who return and resubscribe. This metric allows you to measure the success of win-back campaigns and customer loyalty over time. 

Formula: 

Reactivation MRR = MRR from returning customers 

For example, if two customers reactivate their £100/month plans, your Reactivation MRR is £200. 

Common mistakes when calculating MRR 

Getting your MRR wrong can lead to misleading metrics and poor business decisions. Here are some common pitfalls to avoid: 

1. Counting one-time payments 

Including setup fees, onboarding costs, or one-off purchases in your MRR calculation can artificially inflate your numbers. These types of revenue aren’t recurring and shouldn’t be part of your MRR. 

To avoid this, track non-recurring revenue separately and keep it out of your monthly recurring revenue metrics. 

2. Leaving out discounts or coupons 

Suppose you ignore discounts—temporary promotions or long-term deals—you’ll overstate your MRR. This can create a false sense of growth and lead to poor forecasting. 

To get an accurate picture of your recurring revenue, always use the actual amount billed after discounts when calculating MRR. 

3. Ignoring churn or upgrades 

Failing to update your MRR when customers cancel, downgrade, or upgrade their plans leads to inaccurate reporting. Delays in recognising these changes can make your numbers look better—or worse—than they are. 

To stay accurate, make sure you have real-time tracking in place for all customer status changes. 

4. Treating MRR as booked revenue 

MRR is a business metric used for planning, not a recognised accounting figure. It doesn’t appear on financial statements like your income or balance sheets. 

Use MRR to guide internal decisions, such as growth planning or hiring, but rely on recognised revenue for official financial reporting. 

Ways to increase MRR 

If you aim to grow your MRR sustainably, focus on strategies that bring in more revenue and maximise the value of your existing customer base. Here are three key areas that can make a meaningful impact:  

1. Adjust pricing or package tiers 

Revisiting your pricing model can unlock new revenue without acquiring more customers. When your pricing reflects the value your product delivers, you create more opportunities for revenue growth. 

Consider these approaches: 

• Add premium tiers with advanced features. 

• Introduce usage-based pricing to align costs with value. 

• Bundle features to encourage upgrades. 

Even small changes to the pricing structure can significantly increase your MRR over time. 

2. Expand existing accounts 

It’s often more cost-effective to grow revenue from existing customers than to acquire new ones. Customers who already trust your product are more likely to spend more if given the right reasons. 

You could: 

• Offer add-ons or advanced feature sets. 

• Introduce pricing for teams or additional users. 

• Promote annual plans (and convert them to monthly equivalents for MRR). 

These strategies help deepen customer relationships while boosting revenue. 

3. Reduce churn 

Customer retention is one of the most powerful levers for increasing MRR. The longer customers stay, the more value they bring to your business. 

To reduce churn: 

• Improve the onboarding experience to set customers up for success. 

• Launch customer success programmes to offer ongoing support. 

• Introduce loyalty incentives to keep long-term users engaged. 

What is considered a high MRR? 

What qualifies as a “high” MRR depends on the stage of your business. If you’re in the early stages of growth, achieving 10–15% month-over-month MRR growth is typically considered strong performance. A 5–7% monthly growth rate for more established or mature companies is still a solid indicator of healthy, sustainable progress. 

Handling variable or usage-based billing in MRR calculation 

Not all billing models are based on fixed fees. If your business includes usage-based pricing (common in SaaS platforms or agency services), you must estimate variable revenue when calculating MRR. 

There are three common methods to do this: 

• Minimum commitment method: use the lowest agreed-upon monthly spend from the customer 

• Historical average method: base the estimate on actual usage over the past 3 to 6 months 

• Forecasted usage method: use predictive models or expected usage patterns to estimate monthly revenue 

For example, if a customer pays a fixed retainer of £1,000 per month plus around £300 in usage-based fees, you could use the historical average of £300 (based on the past three months) to calculate: 

MRR = £1,000 + £300 = £1,300 

Choose the method with the most reliable and consistent insight for your business model and billing structure. 

Action steps with SaaS accounting and subscription management software 

Manually tracking MRR can be time-consuming, error-prone, and difficult to scale. That’s why high-growth SaaS and technology businesses rely on dedicated accounting and subscription management software to stay accurate and efficient. 

With the right solution in place, you can benefit from: 

• Real-time MRR tracking. 

• Detailed breakdowns by customer, product, or plan. 

• Automated adjustments for churn, upgrades, and discounts. 

• Seamless integration with your general ledger and CRM. 

Ready to take control of your SaaS monthly recurring revenue? Explore our SaaS accounting and subscription management software and gain the visibility to make smarter, faster business decisions.