Glossary
What is monthly recurring revenue (MRR)?
Monthly recurring revenue (MRR) is the predictable subscription revenue a business earns each month, normalised to a monthly amount: yearly plans are divided by 12, and one-time fees are excluded. Annual recurring revenue (ARR) is MRR times 12. They're the headline growth numbers for SaaS.
Calculating it
Add up the monthly value of every active subscription. Annual plans count as their price ÷ 12. Discounts reduce MRR. One-time payments, setup fees, services and lifetime deals are excluded.
MRR movements
| Type | Meaning |
|---|---|
| New MRR | From new customers |
| Expansion MRR | Upgrades and added seats |
| Contraction MRR | Downgrades |
| Churned MRR | Cancellations |
| Net new MRR | New + expansion - contraction - churned |
Watching these separately shows whether growth comes from acquisition or from existing customers, and where it leaks.
ARR
Annual recurring revenue is MRR × 12, used more for larger or annual-contract businesses and in fundraising.
Example
A SaaS has 100 customers at $30 a month and 20 on a $300 annual plan. MRR = 3,000 + (20 × 25) = $3,500. ARR = $42,000.
Common mistakes
- Counting annual plans at full price in the month they're paid.
- Including one-time setup fees or services.
- Counting free trials as revenue.
- Ignoring discounts.
FAQ
Do one-time payments count toward MRR?
No. Only recurring subscription revenue.
What's the difference between MRR and revenue?
Revenue includes everything; MRR is only the recurring part, normalised monthly.
Is ARR just MRR × 12?
Yes, for most SaaS reporting.
Do usage-based charges count as MRR?
Many companies include a committed or average usage amount; be consistent.