Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the predictable revenue a SaaS business generates each month from active subscriptions. It is normalized to a monthly value — annual contracts are divided by 12, quarterly by 3. MRR is the foundational metric from which nearly every other SaaS metric is derived.
Why Monthly Recurring Revenue (MRR) Matters for SaaS Companies
MRR is the heartbeat of your SaaS business. It tells you how much revenue you can count on next month, this quarter, and this year. Investors use MRR growth rate as the primary indicator of business momentum. For Seed to Series B companies, your MRR trajectory — and the components driving it — determines your fundraising timeline and valuation.
Formula
MRR = Sum of all active monthly subscription amounts. Annual contracts: divide by 12. Quarterly: divide by 3.
Benchmark
Growth rates vary by stage. Seed: 15-20% MoM. Series A: 10-15% MoM. Series B: 5-10% MoM.
Tools for Measurement
An Operator's Take
I see founders report MRR inconsistently all the time. Some include one-time setup fees. Some forget to normalize annual contracts. Some count commitments before the invoice is paid. Clean MRR calculation matters because every other metric — NRR, churn rate, LTV, unit economics — is derived from it. Garbage MRR in, garbage metrics out. The first thing I do in any engagement is audit the MRR calculation. At one company, 'MRR' included $40K in annual professional services revenue that was not recurring. That single correction changed the growth narrative from 22% to 15%.
Common Mistakes
What I see go wrong at Seed to Series B companies.
Including one-time revenue (setup fees, professional services, training) in MRR. Only recurring subscription revenue counts.
Not normalizing annual and quarterly contracts to monthly values. A $12,000 annual contract contributes $1,000 MRR, not $12,000.
Counting signed contracts before payment is collected. MRR should reflect invoiced and paid subscriptions.
Not breaking MRR into components: New MRR, Expansion MRR, Contraction MRR, and Churned MRR. The components tell you where growth is coming from.
What to Do This Week
Concrete steps you can take right now.
Audit your current MRR calculation. Ensure it excludes one-time fees, normalizes multi-month contracts, and only counts active subscriptions.
Break MRR into 4 components: New (new customers), Expansion (upgrades), Contraction (downgrades), Churned (cancellations). Track each monthly.
Calculate your Net New MRR: New + Expansion - Contraction - Churned. This single number tells you if your business is growing or shrinking.
Related Resources
Frequently Asked Questions
What is included in MRR?
MRR includes only recurring subscription revenue from active customers. Annual contracts are divided by 12, quarterly by 3. Exclude one-time fees (setup, implementation, training), variable usage charges above base subscriptions, and professional services revenue. The goal is to capture predictable, repeating revenue.
What is a good MRR growth rate?
Growth expectations vary by stage. Pre-Seed/Seed: 15-20%+ month-over-month. Series A: 10-15% MoM. Series B: 5-10% MoM. These compound dramatically — 10% MoM growth means 3x annual growth. Context matters: consistent 8% is often better than volatile swings between 15% and 2%.
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