Monthly Recurring Revenue (MRR)

MRR is composed of several components: new MRR from first-time customers, expansion MRR from upgrades and add-ons, contraction MRR from downgrades, and churned MRR from cancellations. Understanding these components individually is critical because top-line MRR growth can mask dangerous trends. For example, a company might be adding new MRR aggressively but losing just as much through churn, resulting in a flat or declining net MRR. SaaS companies typically track MRR alongside Annual Recurring Revenue (ARR), which is simply MRR multiplied by 12. ARR is more commonly used at scale and in enterprise contexts, while MRR is preferred by early-stage and SMB-focused companies for its granularity. Growing MRR requires a balanced approach: acquiring new customers, expanding existing accounts, and minimizing churn. The best SaaS companies treat MRR growth as a system-level outcome that depends on every function from marketing and sales to product and customer success.

An analytics SaaS has 400 paying customers across three plans: 200 on the $49/month Starter plan, 150 on the $149/month Growth plan, and 50 on the $499/month Enterprise plan. Their MRR is (200 x $49) + (150 x $149) + (50 x $499) = $9,800 + $22,350 + $24,950 = $57,100. If they also had 10 downgrades and 5 cancellations this month, they would break this into component MRR to understand the full picture.