Definition (canonical)
MRR (Monthly Recurring Revenue) is the normalized value of all active subscriptions per month; ARR is the same measure annualized (ARR = MRR × 12). They capture the predictable core of revenue — which is why subscription businesses are managed, benchmarked and valued on MRR/ARR rather than total revenue.
Calculating it right
Sum the monthly-normalized value of every active contract: a 1,200/year plan contributes 100 to MRR; a 50/month plan contributes 50. Excluded by definition: one-time fees (setup, implementation), usage overages that don't recur predictably, and non-refundable but non-recurring payments. The most common inflation sin: counting a big annual prepayment as one month's MRR — that is cash, not run-rate. Second sin: quietly including heavily discounted pilot deals at list price.
The four movements — where the insight lives
Total MRR is a snapshot; the decomposition tells the story: New MRR (from new customers) + Expansion MRR (upgrades, seats added) − Contraction MRR (downgrades) − Churned MRR (cancellations) = net change. The single most-watched derived metric is Net Revenue Retention (NRR) — this year's MRR from LAST year's customers ÷ their MRR a year ago. NRR above 100% means the existing base grows by itself: expansion outruns churn — the signature of the strongest SaaS companies and a number investors ask for before almost anything else.
Why MRR moves valuations
Predictability compounds: a firm with 100k MRR and 110% NRR has visible, quantified future revenue, so acquirers price it on ARR multiples rather than profit multiples. The same math cuts the other way — MRR shrinking a few percent monthly compounds into a halved business within a year. Managing a subscription company largely means managing the four movements, one by one, with an owner for each.
FAQ
Is committed-but-unbilled contract value MRR? Signed annual contracts count from service start; pipeline and LOIs never do. Booked ≠ recurring.
MRR vs revenue in the P&L? Accounting revenue follows recognition rules; MRR is a management metric of run-rate. They reconcile but rarely match month to month.
What growth is "good"? Stage-dependent: early SaaS aims at double-digit monthly growth; at scale, NRR quality matters more than headline growth.
Should services revenue live in ARR? Keep it separate or label it clearly as non-recurring — blended "ARR" including services is the fastest way to lose credibility in diligence.
Related: SaaS · Churn · Revenue · Subscription Model Reviewed: 2026-07-15 · Sources: SaaS metrics canon