Monthly recurring revenue (MRR)
DEFINITION
Monthly recurring revenue (MRR) is the revenue a subscription business recognizes each month from its active subscriptions, normalized across billing frequencies into a single monthly figure. It is broken into new, expansion, contraction, churned, and reactivation categories that explain what drove the change.
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RELATED TERMS
Monthly recurring revenue, or MRR, is the revenue a subscription business recognizes each month from its active subscriptions. It normalizes revenue from plans of different billing frequencies into a single monthly figure, making it the standard unit for tracking a subscription business's growth and stability.
MRR is rarely reported as one static number. It is broken into movement categories that explain why it changed from one period to the next, and a subscription platform such as Recurly draws those figures from the same billing and subscription records that generate invoices, so the components reconcile to the top-line MRR rather than being assembled separately.
How MRR works
The movement categories break a single top-line number into its drivers:
New MRR: revenue added from new customers.
Expansion MRR: additional revenue from existing customers upgrading, adding seats, or adding products.
Contraction MRR: revenue lost from existing customers downgrading.
Churned MRR: revenue lost when customers cancel entirely.
Reactivation MRR: revenue regained from customers who return after churning.
These same movement categories underlie two related retention metrics: gross revenue retention, which accounts only for churn and downsell, and net revenue retention, which measures retained revenue including upsells alongside churn and downsell. Both are typically calculated from the same underlying MRR or ARR base a business already tracks.
Why MRR matters for subscription businesses
MRR turns a subscription business's revenue into a single, comparable, forward-looking number. Because subscription revenue recurs, MRR gives finance and RevOps teams a clearer read on near-term operating performance than one-time revenue figures do, and it is the number most often cited in board reporting, investor updates, and internal growth tracking.
Breaking MRR into its movement components also turns a single top-line number into a diagnostic tool. A business can be growing in total MRR while still losing ground on retention, if new MRR is masking churned MRR. Tracking the components separately is what makes that visible.
How to use MRR
Normalize revenue from every active subscription to a monthly value, regardless of billing frequency, to get the base MRR figure.
Categorize each period's change in MRR into new, expansion, contraction, churned, and reactivation MRR.
Roll the retention-relevant categories (expansion, contraction, churned) into gross revenue retention and net revenue retention to see how much of the existing base was kept or grown.
Track MRR alongside annual recurring revenue and total processing volume so short-term and long-term views of the business stay aligned.
Review MRR movement by segment, such as plan, region, or customer tier, to find where growth or churn is concentrated rather than relying on the aggregate number alone.
How to calculate monthly recurring revenue
At its simplest, MRR is the number of active subscriptions multiplied by the average monthly revenue per subscription, with every plan normalized to a monthly value first:
MRR = Active subscriptions x Average monthly revenue per subscription
To track how MRR changes from one month to the next, roll the movement categories into the starting figure:
Ending MRR = Beginning MRR + New MRR + Expansion MRR - Contraction MRR - Churned MRR + Reactivation MRR
To work through the movement calculation:
Start with the beginning MRR for the period.
Add new MRR from customers acquired during the period.
Add expansion MRR from upgrades, added seats, and added products.
Subtract contraction MRR from downgrades.
Subtract churned MRR from full cancellations.
Add reactivation MRR from returning customers. The result is ending MRR.
Worked example (illustrative figures): a business starts a month with $100,000 in MRR, adds $8,000 in new MRR and $3,000 in expansion MRR, loses $2,000 to contraction and $4,000 to churn, with no reactivations. Ending MRR is $100,000 + $8,000 + $3,000 - $2,000 - $4,000 = $105,000. The final total shows growth of $5,000, but each category shows why: strong new and expansion revenue partly offset by contraction and churn.
Benefits and examples
A finance team uses MRR movement categories to explain to the board why total MRR grew only slightly despite strong new sales: churned MRR from an earlier cohort offset most of the new bookings.
A RevOps team segments MRR by customer tier and finds that expansion MRR is concentrated in enterprise accounts, informing where to focus retention efforts.
Reading MRR movement by plan or region shows where growth or churn is concentrated, rather than leaving it hidden inside a single aggregate figure.
Frequently asked questions
What is the difference between MRR and ARR? MRR is recurring revenue expressed on a monthly basis. Annual recurring revenue, or ARR, is the same underlying recurring revenue expressed on an annual basis. Businesses typically use MRR for month-to-month tracking and ARR for longer-term planning and reporting.
Does MRR include one-time charges? No. MRR is meant to capture only recurring subscription revenue. One-time charges, such as setup fees or one-off purchases, are generally tracked separately so they do not distort the recurring revenue trend.
Why break MRR into movement categories instead of just tracking the total? The total number alone can hide what is actually happening. Separating new, expansion, contraction, churned, and reactivation MRR shows whether growth is coming from new customers, existing customers, or is being offset by losses elsewhere.
