# Monthly Recurring Revenue

_Also known as: MRR_

**Category:** Metrics
**URL:** https://skiporship.com/glossary/monthly-recurring-revenue
**Last updated:** 2026-08-08

## Definition

Monthly recurring revenue (MRR) is the predictable subscription revenue a business earns each month, normalised so annual and multi-year contracts are expressed as a monthly figure.

## What it means in practice

MRR is the heartbeat metric of a subscription business because it is predictable in a way one-off sales are not. Normalising contracts to a monthly figure — an £1,200 annual plan counts as £100 of MRR — makes periods comparable regardless of billing cycle.

The headline number matters far less than its components. New MRR from fresh customers, expansion MRR from existing accounts upgrading, contraction from downgrades, and churned MRR from cancellations together explain whether growth is healthy. Flat total MRR can conceal heavy churn being masked by heavy acquisition, which is a much more fragile position than the headline implies.

MRR should include only genuinely recurring revenue. Setup fees, one-off professional services and usage overages that do not repeat reliably inflate the figure and undermine the predictability that makes it useful in the first place.

## Formula

```
MRR = Σ (normalised monthly subscription value of all active customers)
```

Track the components separately: new + expansion − contraction − churn. The composition matters more than the total.

## Worked example

A SaaS business whose MRR grew from £50,000 to £52,000 in a month.

- New MRR from new customers: +£8,000.
- Expansion MRR from upgrades: +£2,000.
- Contraction from downgrades: −£1,000.
- Churned MRR from cancellations: −£7,000.
- Net change: +£2,000.

**Takeaway:** A 4% headline gain hides that churn consumed almost 90% of new business. Without the breakdown this looks like growth; with it, it looks like a retention problem.

## Common mistakes

- Including one-off setup fees or professional services, which destroys predictability.
- Reporting only net MRR movement and hiding heavy churn beneath heavy acquisition.
- Counting annual contracts at full value in the month they are signed rather than normalising.
- Recognising committed but unpaid contracts as MRR before payment is secured.

## Related tool

[SaaS pricing calculator](https://skiporship.com/calculators/saas-pricing)

## Related terms

- [Annual Recurring Revenue](https://skiporship.com/glossary/annual-recurring-revenue) — Annual recurring revenue (ARR) is the value of recurring subscription revenue normalised to a twelve-month period — typically monthly recurring revenue multiplied by twelve.
- [Churn Rate](https://skiporship.com/glossary/churn-rate) — Churn rate is the percentage of customers (or revenue) lost over a given period. It determines how much new business you must win simply to stand still.
- [Net Revenue Retention](https://skiporship.com/glossary/net-revenue-retention) — Net revenue retention (NRR) measures how revenue from an existing cohort of customers changes over a year, including upgrades, downgrades and cancellations but excluding new customers. Above 100% means the cohort grows on its own.
- [Customer Lifetime Value](https://skiporship.com/glossary/customer-lifetime-value) — Customer lifetime value (LTV) is the total gross profit you expect to earn from a single customer across the whole of their relationship with you, before the cost of acquiring them.

## FAQ

**How do you calculate MRR?**

Normalise every subscription to a monthly value and sum them. An annual plan of £1,200 contributes £100 of MRR. Exclude one-off fees and unreliable usage charges.

**What is the difference between MRR and ARR?**

ARR is simply MRR multiplied by twelve. Companies with mostly monthly plans tend to report MRR, while those on annual enterprise contracts usually report ARR.

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