What is MRR?

Monthly Recurring Revenue (MRR) is arguably the most important top-line metric for any subscription-based business, particularly in the SaaS sector. It measures the total amount of predictable revenue that a company expects to receive every month from its active subscribers. MRR is calculated by summing the monthly fees paid by all customers; for annual plans, the total contract value is divided by 12. MRR is a vital metric because it smooths out the "lumpiness" of one-time sales and provides a consistent measure of a company's growth velocity and momentum. Founders and investors track several key components of MRR to understand business health: New MRR (revenue from newly acquired customers), Expansion MRR (increased revenue from existing customers through upgrades), Contraction MRR (decreased revenue from existing customers through downgrades), and Churn MRR (revenue lost when customers cancel). A growing MRR is the clearest signal of product-market fit and a scalable business model. By analyzing MRR trends, founders can evaluate the impact of pricing changes, understand their sales performance, and make informed decisions about scaling their operations to achieve their long-term revenue targets and increase the company's valuation. It is the basis for many SaaS valuations.