Glossary

Monthly recurring revenue

Monthly recurring revenue

For subscription-based businesses, revenue isn’t always easy to predict — especially when earnings come through a mix of new customers, renewals, and upgrades. Monthly recurring revenue (MRR) is a key metric that distills this complexity into a simple but revealing number that reflects everything from churn risk to business growth potential.

By understanding how MRR works and which insights it unlocks, B2B organizations gain a reliable way to spot trends and make data-driven business decisions.

What is monthly recurring revenue?

MRR measures how much a business brings in each month through subscriptions and other recurring billing practices. It provides a more immediate and responsive window into how a business is growing than its yearly counterpart: annual recurring revenue. Businesses use MRR to investigate revenue consistency and growth, customer retention, and expansion.

Which types of businesses commonly use MRR? Any company that bills on a recurring basis through subscriptions, retainers, or long-term contracts is a likely candidate. In B2B environments, this typically means subscription businesses like SaaS companies and professional services providers.

How is MRR calculated?

Figuring out how to increase monthly recurring revenue starts with knowing how to calculate it. Fortunately, MRR calculation is straightforward because everything boils down to a simple formula:

MRR = Total active subscriptions × Monthly subscription value

Because MRR measures predictable income streams, it excludes non-recurring one-time fees like setup and installation costs, making it even more straightforward to calculate.

There are several different types of MRR for measuring different sides of recurring revenue. The most common forms include:

  • New MRR: This metric looks at the revenue generated from new customer acquisition, giving you insight into how your user base is growing.
  • Expansion MRR: Expansion MRR shows the increased revenue from subscribers purchasing upgrades and add-ons.
  • Contraction MRR: Losses are just as important as profits for understanding revenue health. Contraction MRR quantifies revenue lost from customers downgrading subscriptions or canceling add-on services.
  • Churn MRR: While customer churn rate tracks how many customers cancel their subscriptions, churn MRR reveals how those cancellations reduce revenue.
  • Net-new MRR: Net-new MRR is a more comprehensive metric that takes the sum of new MRR and expansion MRR and subtracts churn MRR and contraction MRR. This means it shows whether revenue is growing or shrinking while accounting for all gains and losses.

Why does MRR matter in B2B operations?

For such a simple metric, MRR has a wide range of applications for B2B companies. Calculating it helps organizations analyze:

  • Revenue predictability: MRR is an indicator of whether revenue is declining, growing, or stagnating, giving you a reliable benchmark for future revenue forecasting.
  • Account health over time: Changes in expansion and contraction MRR help you pinpoint which customer relationships might need extra attention.
  • Retention trends: Variations in churn and contraction MRR can highlight retention problems early while there’s still time to change course using tactics like proactive outreach or a new customer service strategy.

Building a stable or growing MRR depends on how well businesses manage key operational drivers. These processes include:

  • Onboarding: Helping new customers get up and running quickly through a great customer service experience lays the foundation for healthy, long-term customer relationships.
  • Adoption: Make sure customers are actually using and getting meaningful results from your offerings. This keeps them engaged, making it more likely that they’ll stick around for the long haul.
  • Expansion: Customer acquisition isn’t the only way to grow MRR. Tactics like upsells and cross-selling help you get more out of existing subscriptions without the costs associated with chasing down new paying customers.
  • Support: Responsive customer support improves retention by strengthening relationships, reducing churn risk.