Definition

Monthly Recurring Revenue (MRR) is a normalized measure of a company's predictable revenue stream from all active subscriptions or recurring billing agreements in a given month.

What is Monthly Recurring Revenue (MRR)?

Monthly Recurring Revenue emerged as a critical financial metric with the rise of subscription-based business models in the early 2000s, particularly within the Software-as-a-Service (SaaS) industry. Unlike traditional one-time sales models, subscription businesses needed a standardized way to measure predictable income streams.

Today, MRR has become the cornerstone metric for subscription-based companies, providing a clear snapshot of the business's health and growth trajectory. The metric normalizes all subscription payments into a monthly value, regardless of whether customers pay monthly, quarterly, or annually, allowing for consistent tracking and forecasting of revenue performance over time.

How Monthly Recurring Revenue Works

MRR consolidates all subscription revenue into a standardized monthly amount that provides visibility into the company's recurring revenue stream.

• New MRR: Additional recurring revenue from new customers who subscribe to your product or service during the month.

• Expansion MRR: Increased recurring revenue from existing customers through upsells, cross-sells, or plan upgrades.

• Contraction MRR: Decreased recurring revenue from existing customers due to downgrades to lower-priced plans.

• Churned MRR: Lost recurring revenue from customers who cancel their subscriptions during the month.

• Net New MRR: The combined effect of New MRR plus Expansion MRR minus Contraction MRR minus Churned MRR.

Example of Monthly Recurring Revenue

A B2B SaaS company starts January with a baseline MRR of $100,000. During the month, they acquire 10 new customers on their Professional plan at $500/month (New MRR: $5,000) and convince 5 existing customers to upgrade from Basic ($200/month) to Professional plans (Expansion MRR: $1,500). However, 3 customers downgrade from Enterprise ($1,000/month) to Professional plans (Contraction MRR: $1,500), and 2 customers on the Basic plan cancel their subscriptions (Churned MRR: $400). The company ends January with a Net New MRR of $4,600, bringing their total MRR to $104,600.

Why Monthly Recurring Revenue Matters in B2B Sales

MRR is vital for subscription-based businesses because it provides a clear measure of predictable, ongoing revenue that drives company valuation and operational planning. By breaking down MRR into its components (new, expansion, contraction, and churn), companies can identify specific areas of strength and weakness in their business model. For B2B sales organizations, MRR helps focus strategies on not just acquiring customers but also on retention and expansion, which typically offer higher ROI than new customer acquisition. Investors and stakeholders also rely heavily on MRR metrics to evaluate company health and growth potential.