If you run a subscription-based business—whether it’s a SaaS company, a gym, or a cloud service—you’ve probably heard of MRR (Monthly Recurring Revenue). But what exactly is it, and why does it matter?
In this article, I’ll break down MRR, explain how to calculate it, and discuss why it’s essential for businesses with recurring revenue models.
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What Is MRR?
MRR stands for Monthly Recurring Revenue. It’s a financial metric measuring a business’s monthly predictable income from subscriptions or recurring contracts.
Unlike one-time sales (like buying a single product), MRR focuses on ongoing revenue—money that comes in automatically monthly from customers who stay subscribed.
Key Points About MRR:
- Predictable Income: MRR helps businesses estimate how much money they’ll make each month.
- Excludes One-Time Fees: Only includes recurring payments, not extra charges (like setup fees or one-time purchases).
- Used by Subscription Businesses: Common in SaaS (software-as-a-service), membership sites, and service providers with monthly billing.
Why Is MRR Important?
MRR is one of the most important metrics for businesses that rely on subscriptions. Here’s why:
1. Helps with Financial Forecasting
Since MRR is predictable, businesses can estimate future revenue and plan budgets accordingly.
2. Tracks Business Growth
If MRR increases month-over-month, the business will grow. If it decreases, it may signal customer loss (churn).
3. Improves Decision-Making
Investors and managers use MRR to assess business health, set goals, and make strategic decisions.
4. Measures Customer Retention
A stable or growing MRR means customers are sticking around. A declining MRR may mean they’re canceling subscriptions.
How to Calculate MRR
Calculating MRR is simple:
MRR = Sum of all active monthly subscription revenues
Example 1: SaaS Company
- 50 customers pay 20/month→∗∗20/month→∗∗1,000 MRR**
- 20 customers pay 50/month→∗∗50/month→∗∗1,000 MRR**
- Total MRR = $2,000
Example 2: Gym Memberships
- 200 members pay 30/month→∗∗30/month→∗∗6,000 MRR**
- 50 members pay 60/month→∗∗60/month→∗∗3,000 MRR**
- Total MRR = $9,000
What’s NOT Included in MRR?
- One-time fees (e.g., setup charges, annual payments)
- Non-recurring revenue (e.g., single purchases)
Benefits of Tracking MRR
- Clear Revenue Visibility – Know exactly how much money comes in each month.
- Better Financial Planning – Helps with budgeting and investment decisions.
- Growth Tracking – Compare MRR month-to-month to see if the business is expanding.
- Investor Confidence – Investors love predictable revenue, so a strong MRR makes a business more attractive.
Other Related Metrics
MRR doesn’t stand alone—it’s often analyzed alongside other key metrics:
1. ARR (Annual Recurring Revenue)
MRR multiplied by 12.
Example: 10,000MRR=∗∗10,000MRR=
∗∗120,000 ARR**
2. Churn Rate
- The percentage of customers who cancel their subscriptions.
- High churn = declining MRR.
3. CAC (Customer Acquisition Cost)
- How much does it cost to acquire a new customer?
- The business may lose money if CAC is higher than MRR per customer.
Types of MRR (Monthly Recurring Revenue)
MRR (Monthly Recurring Revenue) is a key metric for subscription-based businesses—it tells you how much predictable income you’re earning each month. But not all MRR is the same. By breaking it down into different types, you can get a clearer picture of where your revenue is coming from (or where it’s leaking).
Let’s explore the different types of MRR and what they reveal about your business.
Why Different Types of MRR Matter
MRR isn’t just one considerable number—it comprises multiple components that show how revenue changes over time.
- If MRR increases, it could mean you’re gaining new customers, existing customers are upgrading, or both.
- If MRR decreases, it might signal cancellations, downgrades, or unhappy customers leaving (churn).
By tracking these different MRR types, you can pinpoint exactly what’s driving growth (or holding it back).
1. New MRR – Revenue from New Customers
This is the extra revenue you earn from brand-new customers in a month.
Example:
- If 5 new customers sign up for a 100/month plan:∗∗NewMRR=5×100/month plan:∗∗NewMRR=5×100 = $500**
Why it matters:
- It shows how effective your sales and marketing efforts are.
- It helps measure customer acquisition success.
2. Upgrade MRR – Revenue from Customers Moving to Higher Plans
This is the additional revenue you earn when existing customers upgrade to more expensive plans or add extra features.
Example:
- A customer upgrades from a 50/month plan to a 50/month plan to a 200/month plan and buys a 25add−on. ∗∗UpgradeMRR=(25add−on.∗∗Upgrade MRR=(200 – 50)+50)+25 = $175**)
Why it matters:
- Indicates customer satisfaction and willingness to pay more.
- Helps identify upsell opportunities.
3. Downgrade MRR – Revenue Lost from Customers Moving to Cheaper Plans
This is the reduction in revenue when customers switch to lower-priced plans.
Example:
- A customer downgrades from a 500/month plan to a 500/month plan to a 100/month plan.
Downgrade MRR = 500−500−100 = $400 (lost revenue)
Why it matters:
- Signals potential dissatisfaction or budget constraints.
- It helps you refine pricing and retention strategies.
4. Expansion MRR – Extra Revenue from Existing Customers
This is the additional revenue from current customers (not new ones) through upsells, cross-sells, or add-ons.
Example:
- If your business starts with 800K MRR and earns an extra 800KM RR and earns an extra 17K from existing customers:
Expansion MRR Growth Rate = (17K/17K/800K) × 100 = 2.1%
Why it matters:
- It shows how well you’re growing revenue without new customer acquisition.
- High expansion MRR means happy, engaged customers.
5. Reactivation MRR – Revenue from Returning Customers
This is the revenue from previously churned customers who come back.
Example:
- If five old customers return, each paying 50/month: ∗∗Reactivation MRR=5×50/month: ∗∗ Reactivation MRR=5×50 = $250**
Why it matters:
- Measures win-back success.
- It helps assess if re-engagement strategies (like discounts or new features) work.
6. Contraction MRR – Revenue Lost from Downgrades & Discounts
This is the total revenue lost due to downgrades, pauses, discounts, or canceled add-ons.
Example:
If you give 50 customers a 30discountforamonth:∗∗ContractionMRR=
50×30 discount for a month:∗∗Contraction MRR=
50×30 = $1,500 (lost revenue)**
Why it matters:
- Helps track all revenue reductions (not just cancellations).
- Reveals if discounts or plan changes are hurting profits.
7. Churn MRR – Revenue Lost from Cancellations
This is the total revenue lost when customers cancel their subscriptions entirely.
Example:
If 3 customers paying 1,000/month leave:∗∗ChurnMRR=
3×1,000/month leave:∗∗ChurnMRR=3×1,000 = $3,000 (lost revenue)**
Why it matters:
- High churn = unhappy customers or poor product-market fit.
- It helps measure retention success.
8. Net New MRR – The Big Picture of Growth
This shows whether your total MRR grew or shrank in a given month.
Formula:
Net New MRR = (New MRR + Expansion MRR) – Churn MRR
Example:
New MRR: 500(5 new customers at 500)
Expansion MRR: 1,000(10 upgrades from 1,000
(10upgrades from 100 to $200)
Churn MRR: 600(3 cancellations at 600 (3 cancellations at 200)
Net New MRR = (500+500+1,000) – 600=600=900 (growth)
Why it matters:
- It tells you if your business is growing or shrinking overall.
- Helps balance acquisition vs. retention efforts.
How to Boost Your MRR
Monthly Recurring Revenue (MRR) is the lifeblood of any subscription business. To grow sustainably, you need to increase MRR while keeping churn low.
Here are 10 practical ways to improve your MRR—without sounding like a boring finance textbook.
1. Upsell & Cross-Sell to Existing Customers
Why chase new customers when your current ones can spend more?
- Upsell: Offer premium plans (e.g., “Upgrade for extra features!”).
- Cross-sell: Recommend add-ons (e.g., “Get 50% more storage for $10/month”).
✅ Pro Tip: Use in-app messages or personalized emails to suggest upgrades.
2. Reduce Churn (Stop the Leaks!)
Losing customers kills MRR. Fix this by:
- Improving onboarding (help users see value fast).
- Offering discounts before they cancel (“Stay for 20% off!”).
- Exit surveys (ask why they’re leaving & fix issues).
💡 Example: If customers cancel due to pricing, offer a cheaper plan.
3. Raise Prices (Without Losing Customers)
If you haven’t increased prices in years, you’re leaving money on the table.
- Test small increases (e.g., +5-10%).
- Grandfather old customers (let them keep their current rate).
- Justify the hike (new features, better support, inflation).
4. Offer Annual Billing (Get Cash Faster)
Monthly plans are great, but annual subscriptions = bigger payouts upfront.
- Discount for yearly plans (e.g., “Pay yearly, save 15%”).
- Highlight savings (“10/month vs 10/month vs 100/year”).
💰 Bonus: Lower churn (people stick around longer).
5. Improve Customer Retention (Happy Users = More MRR)
- Proactive support (solve issues before they complain).
- Loyalty rewards (free month for long-term users).
- Engagement emails (show them unused features).
📈 Result: Longer customer lifetime = more MRR.
6. Target High-Value Customers
Not all customers are equal. Focus on:
- Bigger businesses (they pay more, churn less).
- Industries with higher budgets (e.g., SaaS, finance).
🎯 Pro Tip: Adjust marketing to attract these buyers.
7. Reduce Failed Payments (Recover Lost Revenue)
Some churn isn’t voluntary—it’s expired credit cards!
- Send payment reminders before renewal.
- Use dunning emails (“Update your card to avoid service interruption”).
💳 Tools: Stripe, Chargebee, or Recurly handle this automatically.
8. Create Tiered Pricing (More Options = More Sales)
Not everyone wants the same plan. Offer:
- Basic (cheap, limited features).
- Pro (best value, most popular).
- Enterprise (premium, high price).
📊 Result: More sign-ups & upgrade paths.
9. Win Back Old Customers (Free MRR Boost!)
Some churned users might return if you ask nicely.
- Offer a discount (“Come back, we miss you!”).
- Highlight new features (“Check out what’s changed!”).
🔄 Example: A simple “We want you back” email can work wonders.
10. Track & Optimize (Data Beats Guessing)
You can’t improve what you don’t measure.
- Monitor MRR growth/churn weekly.
- A/B test pricing & offers.
- Double down on what works.
📉 Warning: Ignoring metrics = flying blind.
Final Thoughts
MRR is a powerful metric for any business with recurring revenue. It clarifies income, helps track growth, and supports smarter financial decisions.
Businesses can ensure long-term stability and scalability by monitoring MRR alongside churn, CAC, and ARR.
Key Takeaways:
- MRR = Monthly Recurring Revenue (predictable income).
- It helps forecast earnings and measure growth.
- Excludes one-time fees—only counts subscriptions.
- Works alongside ARR, churn, and CAC for complete financial insight.
If you’re running a subscription business, keeping an eye on MRR should be a top priority! 🚀