MRR (Monthly Recurring Revenue)
Definition
Monthly Recurring Revenue (MRR) is the predictable total revenue generated by a subscription business in a month, normalized to a monthly amount. It is the foundation metric for SaaS valuations.
Understanding MRR
MRR represents the recurring portion of your revenue, excluding one-time payments, setup fees, or non-recurring charges. It provides a normalized view of subscription revenue that makes month-over-month comparison meaningful.
How to Calculate MRR
The basic formula is simple: sum of all recurring revenue in a month. However, calculating accurate MRR requires normalizing different billing periods:
- Monthly subscribers: Full monthly amount
- Annual subscribers: Annual amount divided by 12
- Quarterly subscribers: Quarterly amount divided by 3
Why MRR Matters for Valuations
MRR is the primary metric used to value SaaS businesses. Buyers pay multiples of MRR (typically expressed as ARR multiples) because it represents predictable, recurring revenue. A SaaS with $10,000 MRR might be valued at $360,000-$1,200,000 depending on growth rate and other factors.
Types of MRR
- New MRR: Revenue from new customers acquired in the period
- Expansion MRR: Additional revenue from existing customers (upgrades)
- Churned MRR: Revenue lost from cancellations
- Contraction MRR: Revenue lost from downgrades
- Net New MRR: New + Expansion - Churned - Contraction
MRR Formulas
Example Calculation
A SaaS has the following customers:
- 50 customers on $29/month plan = $1,450
- 20 customers on $99/month plan = $1,980
- 5 customers on $299/year plan = $124.58 ($299 × 5 / 12)
Total MRR = $1,450 + $1,980 + $124.58 = $3,554.58
Related Terms
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