Glossary
What Is Monthly Recurring Revenue (MRR)?
Updated · Team Fonda
Short answer
Monthly recurring revenue (MRR) is the predictable income a business earns every month from subscriptions or other repeating payments. The simplest way to calculate it is to multiply your number of paying customers by the average amount each one pays per month.
Key takeaways
- MRR = paying customers x average monthly price per customer.
- Only repeating payments count. Setup fees and one-off sales stay out.
- MRR changes through four movements: new, expansion, contraction and churned.
- MRR is not cash. An annual plan paid upfront counts as one twelfth each month.
What MRR means in plain words
MRR answers one question: if nothing changed, how much would customers pay you next month? It is the main scorecard for any business with a subscription revenue model, from SaaS products to gym memberships, retainers and subscription boxes.
Its value is that it smooths out noise. A month with one big one-off sale can look great in the bank and still hide a shrinking subscriber base. MRR strips out the one-offs so you can see the underlying trend.
How to calculate MRR
Formulas
MRR = paying customers x average monthly price per customer. Net new MRR = new MRR + expansion MRR - contraction MRR - churned MRR. Ending MRR = starting MRR + net new MRR.
- New MRR: from customers who started paying this month.
- Expansion MRR: from existing customers who upgraded or added seats.
- Contraction MRR: lost when existing customers downgrade.
- Churned MRR: lost when customers cancel. See churn rate.
To put longer plans on a monthly basis, divide by the number of months. A $600 annual plan is $50 of MRR. You can run your own figures in the free MRR calculator.
A worked example
This is a made-up example. Say you sell scheduling software to dog groomers for $50 a month and start June with 40 paying customers, so starting MRR is $2,000. During June this happens:
| Movement | What happened | MRR change |
|---|---|---|
| New | 6 new customers at $50 | +$300 |
| Expansion | 2 customers add a $50 extra location | +$100 |
| Contraction | 1 customer drops to a $25 plan | -$25 |
| Churned | 3 customers cancel | -$150 |
| Net new MRR | 300 + 100 - 25 - 150 | +$225 |
Example numbers for illustration only.
Ending MRR is $2,000 + $225 = $2,225, a month-over-month growth of 11.25%. Notice that the headline number went up while $175 leaked out. Breaking MRR into its four movements is what shows you the leak.
Why MRR matters for a first-time founder
You meet MRR the day your first customer agrees to pay you every month. Before that, it is a planning tool: your business plan needs a month-by-month forecast, and for a subscription business that forecast is an MRR table. If you are writing one, how to write a business plan for a startup walks through the financial chapter.
MRR also affects your runway. Compare it with your monthly costs to see how far you are from covering them, because that gap is what drains your cash. And when you talk to investors, MRR and its growth rate are the usual shorthand for traction. Fonda's journey has a Key metrics step in the Scale phase, after launch, and MRR is the kind of figure that belongs there.
Common mistakes with MRR
- Counting one-off income. Setup fees, consulting days and hardware sales are revenue, but they are not recurring.
- Booking an annual payment in one month. $1,200 paid upfront is $100 of MRR for twelve months, not $1,200 this month.
- Including free trials and unpaid invoices. Only customers who are actually paying count.
- Ignoring discounts. If a customer pays $40 on a $50 plan, their MRR is $40.
- Confusing MRR with cash or profit. MRR says nothing about your costs or when money lands in the bank. Track cash flow alongside it.
Related terms
- [Annual recurring revenue](/resources/glossary/annual-recurring-revenue): MRR multiplied by 12.
- ARPU: average revenue per user, which is MRR divided by paying customers.
- Net revenue retention: how much MRR you keep from existing customers after upgrades, downgrades and cancellations.
Frequently asked questions
What is the difference between MRR and revenue?
Revenue is everything you invoice in a period, including one-off sales. MRR is only the part that repeats each month. MRR is also a management metric you calculate yourself, not an official accounting figure, so it will not match your accounts exactly.
Can a business without software have MRR?
Yes. Any repeating payment qualifies: a cleaning contract billed monthly, a coaching membership, a retainer or a subscription box. If the customer has agreed to pay on a regular schedule until they cancel, it is recurring revenue.
How fast should MRR grow?
There is no single correct rate, and early percentages swing wildly because the base is small. A steadier signal is whether net new MRR is positive each month and whether churned MRR is shrinking as a share of the total.
Do usage-based charges count as MRR?
Opinions differ. Many founders count only the fixed subscription part and report usage income separately, because usage can vary a lot from month to month. Whatever you choose, apply the same rule every month and say which one you use.