Monthly Recurring Revenue (MRR)
B2B SaaS Pricing Glossary
Monthly Recurring Revenue (MRR): Monthly Recurring Revenue (MRR) is the predictable, normalized monthly revenue a SaaS company earns from active subscriptions. It excludes one-time fees, professional services, and variable overages, providing a clean measure of the subscription business's monthly run rate.
Definition
MRR is calculated by summing the monthly-normalized value of all active subscriptions. Annual contracts are divided by 12 to normalize. MRR is typically broken into components: New MRR (from new customers), Expansion MRR (upgrades and add-ons from existing customers), Contraction MRR (downgrades), and Churned MRR (lost customers). These components reveal whether growth is healthy and sustainable.
MRR differs from recognized revenue in accounting terms — it's a forward-looking operational metric, not a GAAP measure. A customer on a $12,000 annual contract contributes $1,000 MRR from day one, even though the revenue is recognized over 12 months. This makes MRR the best real-time pulse of a SaaS business's health.
Why It Matters for B2B SaaS
MRR is the foundational operating metric for SaaS businesses. Investors, board members, and operators all use it to gauge growth trajectory and business health. The MRR growth rate — particularly the breakdown between new, expansion, and churn — tells you whether your growth engine is efficient. Benchmark: top-quartile SaaS companies at $5-20M ARR grow MRR at 10-15% month-over-month, with expansion MRR contributing at least 30% of gross new MRR.
FAQs
How do you calculate MRR?+
Sum the monthly-normalized value of all active subscriptions. Monthly plans use their face value. Annual plans are divided by 12. Quarterly plans are divided by 3. Exclude one-time setup fees, professional services, and usage overages that vary month to month. For usage-based components, some companies use trailing 3-month average.
What is the difference between MRR and ARR?+
MRR measures monthly recurring revenue; ARR (Annual Recurring Revenue) is simply MRR multiplied by 12. MRR is more useful for early-stage companies and month-to-month trend analysis. ARR is the standard metric for companies above $1M in revenue and is the figure used in most SaaS valuations and benchmarks.
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