What Is Monthly Recurring Revenue (MRR)?
MRR is the lifeblood metric for any subscription business. It tells you how much predictable revenue you generate every month — and how that number is changing.
Key Takeaways
- MRR = total active subscriptions × average revenue per subscription per month
- MRR is predictable, compounding revenue — this is what makes subscription businesses valuable
- Track MRR movements: new MRR, expansion MRR, churned MRR, and net new MRR
- ARR (Annual Recurring Revenue) = MRR × 12 — used for valuation and fundraising conversations
The basic calculation
Monthly Recurring Revenue is the total predictable revenue your subscription business generates each month from active subscriptions. If you have 200 customers paying £50/month, your MRR is £10,000. If some customers pay annually, normalise to monthly: a £600/year plan contributes £50/month to MRR. One-off payments, setup fees, and professional services revenue are not included — MRR is specifically about recurring, predictable revenue.
The four MRR movements
New MRR: revenue from customers who subscribed this month for the first time. Expansion MRR: additional revenue from existing customers who upgraded their plan or added seats. Churned MRR: revenue lost from customers who cancelled. Contraction MRR: revenue lost from customers who downgraded. Net New MRR = New MRR + Expansion MRR − Churned MRR − Contraction MRR. If this number is positive, your recurring revenue base is growing.
Why MRR matters more than revenue
For subscription businesses, MRR is a more meaningful signal than total revenue because it strips out noise — one-off deals, annual payment timing, seasonal spikes. Two businesses with £120,000 annual revenue look identical, but one with £10,000 MRR (predictable, monthly-renewing) is fundamentally more valuable than one with £120,000 in project revenue (uncertain, must be re-won each year). This is why investors in subscription businesses focus almost entirely on MRR and its growth rate.
MRR vs ARR
ARR (Annual Recurring Revenue) = MRR × 12. ARR is typically used for businesses with larger contract values and annual payment cycles (enterprise SaaS), while MRR is more common in SMB and consumer subscription contexts. Both measure the same thing — the annualised run rate of recurring revenue — at different scales. ARR is the number most commonly cited in fundraising conversations and business valuations.