MRR (Monthly Recurring Revenue)

What is MRR (Monthly Recurring Revenue)?

MRR (Monthly Recurring Revenue) measures the predictable revenue generated each month from subscription-based business models. It includes all recurring charges: monthly subscription fees, recurring add-ons, and expansion revenue, minus downgrades and cancellations. One-time fees like setup charges or professional services are excluded.

For SaaS and subscription businesses, MRR is the heartbeat metric. Unlike ARR (Annual Recurring Revenue), which smooths over seasonality and short-term fluctuations, MRR provides real-time visibility into business health and momentum.

Why It Matters

MRR determines predictable cash flow and business valuation. Investors and acquirers value subscription businesses based on MRR multiples because recurring revenue is more valuable than one-time revenue. Growing MRR indicates sustainable growth; declining MRR signals serious problems requiring immediate attention.

MRR also enables accurate forecasting and planning. When you know how much revenue will recur next month (barring churn), you can make hiring decisions, investment commitments, and resource allocations with confidence.

Benchmarks

• Growth rate: Healthy SaaS companies grow MRR 10-20% month-over-month early-stage, 5-10% mid-stage
• Churn impact: 5% monthly churn destroys 50% of MRR annually; 2% monthly churn destroys ~25%
• Expansion contribution: Top companies get 20-30% of MRR growth from expansion (upsells/cross-sells)
• Rule of 40: Growth rate + profit margin should exceed 40% for healthy SaaS (both expressed as annual percentages)

Best Practices

1. Track MRR components separately - Monitor new business, expansion, contraction, and churn separately. Aggregate MRR masks important trends. High new business masked by high churn is a red flag.

2. Focus on net MRR growth - Gross MRR growth matters, but net MRR (after churn) is what hits the bank. Prioritize retention as highly as acquisition for sustainable growth.

3. Use MRR per employee as efficiency metric - MRR/employee indicates productivity and scalability. Rising MRR/employee shows scaling efficiency; falling MRR/employee suggests bloating.

4. Forecast with MRR cohorts - Track MRR by month of acquisition to see how newer cohorts perform versus older ones. Declining cohort quality forecasts future MRR problems.

5. Report MRR alongside bookings and revenue - MRR measures contracted recurring revenue. Bookings measure new commitments. GAAP revenue includes everything. Together, they provide complete picture.

Common Mistakes

• Including one-time fees in MRR calculations
• Focusing on gross MRR growth while ignoring churn
• Not breaking down MRR by component to understand underlying trends
• Treating MRR as the only metric that matters (CAC, LTV, and churn are equally critical)
• Forecasting based on MRR without considering churn and contraction

Key Takeaways

• MRR is the core metric for subscription business health and valuation
• Track MRR components (new, expansion, churn) separately for complete picture
• Net MRR growth matters more than gross MRR growth
• MRR per employee measures scaling efficiency
• MRR enables predictable forecasting but requires accurate churn assumptions