MRRMonthly Recurring Revenue
By Federico Donatone · Updated October 15, 2026MRR (monthly recurring revenue) is the predictable subscription revenue a company earns in one month from all active customers, with every contract converted to a monthly amount. It excludes one-time fees and services. Subscription businesses track MRR to see growth early, because new deals, upgrades, downgrades and cancellations show up in it within weeks.
How to calculate MRR
Add up the monthly recurring amount of every active customer. Annual contracts are divided by 12, quarterly ones by 3. Leave out setup fees, one-off services and usage that is not contracted.
MRR = Sum of each active customer's recurring fee, converted to a monthly amountFor example, 40 customers on a $500 monthly plan plus one customer on a $24,000 annual contract give MRR of (40 × $500) + ($24,000 ÷ 12) = $20,000 + $2,000 = $22,000.Three mistakes inflate MRR more than any others:
- Booking a full annual payment as one month of MRR.
- Counting a cancelled customer as churned only when an invoice goes unpaid, instead of when the subscription ends.
- Adding usage above the committed minimum, which may not repeat next month.
The five MRR movements to track
Total MRR hides what happened inside the month. Split every change into movements, so you can see whether growth came from new customers or from the ones you already have.
| Movement | What it means | Direction |
|---|---|---|
| New MRR | First payment from a new customer | Up |
| Expansion MRR | Upgrades, extra seats, add-ons | Up |
| Reactivation MRR | A former customer comes back | Up |
| Contraction MRR | Downgrades or fewer seats | Down |
| Churned MRR | Customers who cancel | Down |
Net new MRR = New + Expansion + Reactivation - Contraction - ChurnedIf a month brings $5,000 of new MRR, $1,500 of expansion, no reactivation, $800 of contraction and $1,200 of churned MRR, net new MRR is $5,000 + $1,500 - $800 - $1,200 = $4,500.MRR vs ARR: which one to report
ARR (annual recurring revenue) is MRR × 12, as long as every fee inside MRR is recurring. Monthly plans and self-serve products usually report MRR because the number reacts quickly. Companies selling annual or multi-year contracts often report ARR, since one signed contract changes the year more than the month.
Either way, pick one definition and keep it. Mixing the two, or adding one-time fees to get a bigger number, makes month to month comparisons useless.
With usage-based pricing, count only the committed minimum as MRR and report usage above it on a separate line. Usage revenue is real money, but it can fall the moment a customer's own business slows.
What MRR tells a sales team
MRR movements point to the team that owns the fix. Weak new MRR is a pipeline problem: not enough qualified opportunities, or a win rate that slipped. High churned MRR is often a fit problem that started in sales, because customers who were never a good match leave first.
- New MRR falls while meetings stay steady: look at qualification and closing.
- New MRR falls with fewer meetings: look at list quality, outreach volume and show rate.
- Churned MRR rises: compare the lost accounts with your ideal customer profile.
Put MRR movements on the same page as pipeline in your weekly review, so the sales team sees the cost of churned MRR right next to the new deals it brings in.
If new MRR depends on outbound, measure the stages before the deal honestly. The B2B Outbound Evidence Standard keeps booked meetings, held meetings and opportunities apart, and our guide to lead generation for SaaS companies covers the engine that feeds new MRR.