Monthly Recurring Revenue (MRR): Calculator, Formula & How to Track for Growth

Monthly Recurring Revenue (MRR) is the predictable, subscription-based revenue a business expects to earn each month, excluding one-time fees, setup costs, and variable charges.

For SaaS, fintech, and other subscription-based companies, MRR is arguably the most important performance indicator. By monitoring monthly cash flows, businesses can understand their overall health and make data-driven decisions for sustainable growth.

In supporting hundreds of PE- and VC-backed subscription-based businesses, we’ve found that  many companies struggle with how to calculate MRR accurately. Getting it wrong can mislead investors, distort financial forecasts, and create serious business risks.

To help you keep your finances in order, we’ll cover how to calculate MRR correctly, mistakes to avoid, as well as its importance and limitations.

Formula

To calculate MRR, multiply the total number of paying customers (users) by the Average Revenue Per User (ARPU):

MRR = Total Number of Paying Customers x Average Revenue Per User (ARPU)

The Average Revenue Per User can be determined by taking the average sum that customers are spending and dividing it by the total number of monthly customers.

For example, if a company has 100 customers paying $200 per month on average, the MRR is $20,000: 

100 x $200 = $20,000

The customer-by-customer method is a slight variation from the above formula.

If you have 100 customers that each paid $15 per month, the MRR will be 100 X $15 = $1,500.

If there are also 50 customers that each pay $25 per month, their MRR is 50 X $25 = $1,250.

The total MRR for all 150 customers will be $2,750.

While that’s a basic overview, this gets more complicated for businesses that offer tiered pricing plans and contract lengths. Here’s how to gather and apply the data.

Steps

1. Build a list of all active, paying customers for a given month with their corresponding subscription value.

2. For customers on multi-month or annual contracts, divide the total contract value by the number of months in the contract to determine their monthly contribution to MRR.
   
3. Add all customer monthly contribution amounts to get your total Monthly Recurring Revenue for that period.
   
4. Segment MRR into different categories for better insights. Here are a few examples we’ll cover:

• New MRR: Revenue from newly acquired customers.
• Expansion MRR: Additional revenue from existing customers upgrading or purchasing add-ons.
• Churn MRR: Revenue lost due to cancellations. The churn rate is: Lost Revenue / Total Revenue X 100.
• Net New MRR: The net change in MRR after factoring in growth and churn.

5. Track growth trends over time.

Types of MRR + Calculations

MRR can be broken down into different types to provide unique insights into customer acquisition, retention, and revenue growth (or decline).

Type	Description	Formula
New MRR	Revenue from brand-new customers subscribing within a given period.	Σ MRR from new customers
Expansion MRR	Additional revenue from existing customers upgrading or purchasing add-ons.	Σ MRR gained from upgrades + add-ons
Churn MRR	Revenue lost from customers fully canceling their subscriptions.	Σ MRR lost from fully canceled customers
Contraction MRR	Revenue lost from customers reducing spending, including downgrades, removed add-ons, and discounts.	Σ MRR lost from downgrades + removed add-ons + discounts
Downgrade MRR	Revenue lost from customers moving to a lower-tier plan.	Σ MRR lost due to plan downgrades
Reactivation MRR	Revenue from previously churned customers who return.	Σ MRR from reactivated customers
Net New MRR	Total MRR growth after accounting for new, expansion, reactivation, contraction, and churned revenue.	(New MRR + Expansion MRR + Reactivation MRR) – (Churn MRR + Contraction MRR)
Committed MRR (CMRR)	Forward-looking MRR including signed agreements, upcoming expansions, and expected churn.	Current MRR + Signed New MRR + Signed Expansion MRR − Expected Churn MRR

New MRR

Additional revenue generated from brand-new subscriptions for a period. This can be determined by adding the total MRR from new subscribers.

Example:

• 3 new customers subscribe with MRR values of $100, $200, and $150.
• New MRR = $100 + $200 + $150 = $450

Upgrade MRR

Revenue gained when existing customers upgrade to a higher-tier plan. Calculate by adding the additional revenue per upgraded customer.

Example:

• Customer A upgrades from $100 to $200 (+$100)
• Customer B upgrades from $150 to $250 (+$100)
• Upgrade MRR = $100 + $100 = $200

Churn MRR

Revenue lost due to customer cancellations, which is calculated as the sum of the lost MRR (# of Churned customers x Subscription plan).

Example:

• 5 customers on $100/month plans cancel
• Churn MRR = 5 x $100 = $500

Expansion MRR

More comprehensive than Upgrade MRR, Expansion MR measures revenue gained from existing customers via upgrades, add-ons, and/or additional purchases.

When positive, companies know that they can retain their customers through satisfaction and loyalty. This is benefits the bottom line as it’s significantly cheaper to retain existing customers than acquiring new ones.

Example:

• Customer A upgrades their plan from $100 to $150 (+$50)
• Customer B purchases a $30 add-on.
• Expansion MRR = $50 + $30 = $80

Downgrade MRR

The total revenue lost when existing customers move to a lower-tier subscription plan.

Example:

• Customer A downgrades from a $300/month plan to a $200/month plan (-$100 MRR).
• Customer B downgrades from a $250/month plan to a $150/month plan (-$100 MRR).
• Customer C downgrades from a $500/month plan to a $400/month plan (-$100 MRR).
• Downgrade MRR= -$100 + -$100 + -$100 = -$300

Reactivation MRR

Revenue gained when previously churned customers return and resubscribe.

Example:

• Customer A, who previously churned, resubscribes to a $200/month plan.
• Customer B, a former churned user, rejoins at $150/month.
• Reactivation MRR = $200 + $150 = $350

Contraction MRR

More comprehensive than Downgrade MRR, this measure the total revenue lost from downgrades, removed add-ons, or discounts (excluding full cancellations).

Example:

• Customer A downgrades from $300 to $200 (-$100)
• Customer B removes a $50/month add-on.
• Customer C negotiates a $20 discount.
• Contraction MRR = $100 + $50 + $20 = $170

Net New MRR

The total net gain or loss in MRR for a given period, considering new, expansion, reactivation, contraction, and churn MRR.

Net New MRR= (New MRR + Expansion MRR + Reactivation MRR) – (Churn MRR + Contraction MRR)

Example:

• New MRR = $450
• Expansion MRR = $80
• Reactivation MRR = $350
• Churn MRR = $200
• Contraction MRR = $170
• Net New MRR =(450+80+350)−(200+170) = $510

Net MRR Growth Rate

A strong indicator of a business’s momentum, the Net MRR Growth Rate is the percentage change in MRR over a given period, considering new revenue growth (from new customers, upgrades, and expansions) and revenue loss (from churn and downgrades).

To calculate, divide Net New MRR by your Starting MRR for a given period, and multiply by 100.

Net MRR Growth Rate= (Net New MRR​ / Starting MRR) ×100

Example:

Step 1: Calculate Net New MRR

• New MRR = $500
• Expansion MRR = $200
• Reactivation MRR = $300
• Churn MRR = $400
• Contraction MRR = $150
• Net New MRR=(500+200+300)−(400+150) = 450

Step 2: Calculate Net MRR Growth Rate

• Starting MRR = $10,000
• Net MRR Growth Rate= (450/10,000)×100=4.5%

An MRR growth rate of 15-20% is a good target for post-Seed/pre-Series A SaaS startups to have.

Committed MRR

A forward-looking metric that accounts for all active subscriptions, contracted upgrades, and expected churn.

Considered more accurate and predictable than MRR alone, this is what banks, angel investors, and venture capitalists want to see when investing in a new SaaS startup. The CMRR is also used by board members and other stakeholders when measuring and monitoring business progress.

CMRR = MRR + New MRR + Expansion MRR – Expected Churn MRR

Example:

• Current MRR = $5,000
• Signed New MRR = $500
• Signed Expansion MRR = $200
• Expected Churn MRR = $300
• CMRR = ($5,000 + $500 + $200) – $300 = $5,400

Calculation Mistakes to Avoid

As a business-critical financial metric, the monthly recurring revenue always needs to use accurate data. Many businesses miscalculate MRR by including these common mistakes that create misleading financial projections:

1. Including One-Time (Non-Recurring) Payments

MRR should only include recurring revenue. Exclude setup fees, implementation costs, or one-time purchases.

2. Counting Free Trials

Only include paying customers in MRR. Free trials typically lead to higher-than-expected MRR calculations because people are often registering multiple accounts. Adding these leads into the MRR will show a high customer acquisition rate one month and a higher than expected customer churn rate the next month. To avoid this, use a conversion rate (for example, .03%) as the assumed percentage of all free trials which will convert and pay.

3. Miscalculating Discounts & Promotions

If a customer gets a discount, calculate MRR based on the discounted price, not the full price for the duration of the discount or promotion.

4. Ignoring Churned Customers

If a customer cancels, remove them from MRR calculations immediately.

5. Overlooking Expansion Revenue

Upgrades, add-ons, and cross-sells should be included as Expansion MRR, reflecting increased revenue from existing customers.

6. Including full upfront payments

For any payment received in advance for an annual, semi-annual, or quarterly subscription upfront, their MRR should be divided by the subscription length.

Importance of Accurate Tracking

Investors love recurring revenue models because they provide predictable, durable cash flows that create stability, support future growth, and can enhance company valuations.

Tracking MRR allows companies to forecast revenue, identify churn risks, and improve retention strategies.

1. Financial Forecasting & Stability

MRR helps businesses predict future revenue by providing a monthly cash flow and budget forecast, making it easier to manage cash flow and allocate resources effectively to help your organization grow.

2. Business Valuation & Investor Appeal

Investors favor companies with strong MRR growth and low churn, as these businesses demonstrate stable, scalable revenue models.

3. Customer Retention & Revenue Expansion

Analyzing MRR trends highlights churn risks, how well the business is retaining customers, and opportunities for expansion revenue (upsells, cross-sells).

How to Increase MRR

Growing MRR isn’t just about acquiring new customers. It also involves retaining existing customers, optimizing pricing, and increasing expansion revenue.

1. Reduce Churn

Reducing churn ensures that your existing revenue remains stable.

• Offer discounted annual contracts for more predictable revenue.
• Improve customer support and engagement.
• Provide loyalty incentives for long-term customers.

2. Expand Existing Customer Revenue

Increasing revenue from existing customers is often more cost-effective than acquiring new ones.

• Upsell premium features or higher-tier plans.
• Cross-sell complementary products or services.
• Introduce add-ons that enhance value.

3. Optimize Pricing Strategy

A well-designed pricing strategy can have a major impact on MRR.

• Test different pricing models to maximize revenue.
• Eliminate unnecessary discounts or promotions.
• Introduce usage-based pricing for flexibility.

4. Improve Customer Acquisition

A steady stream of new customers ensures continued MRR growth.

• Focus on high-quality leads that fit your ideal customer profile.
• Refine marketing and sales strategies to attract more subscribers.

Limitations of Using MRR for Growth Decisions

While MRR is valuable, it has limitations:

• Does not account for profitability: A company can have high MRR but still be unprofitable due to high acquisition or operational costs.
• Does not reflect customer lifetime value (LTV): MRR is a short-term metric, whereas LTV measures long-term financial impact.
• Can be misleading without churn data: If churn is high, MRR growth may not be sustainable.

Subscription-based businesses should use it alongside other key metrics to measure and monitor their financial health.

Other Metrics to Track Alongside MRR

Metric	Why It’s Important
Customer Churn Rate	Measures customer retention and revenue stability.
Customer Lifetime Value (LTV)	Predicts total revenue per customer over their lifetime.
Customer Acquisition Cost (CAC)	Helps determine if MRR growth is sustainable.
Net Revenue Retention (NRR)	Shows overall revenue retention, including expansion MRR.
Average Revenue Per User (ARPU)	Tracks revenue trends per customer.

Going Beyond the Numbers

Monthly recurring revenue is one of the many important metrics that subscription-based businesses ought to be monitoring, tracking, and reporting. But ultimately, growing the business will depend upon leadership’s ability to act upon accurate data.

Without the proper tools to get the job done, keeping track and understanding any of these metrics would be impossible. Consero offers robust financial solutions to help you gain control of your finances and make highly informed decisions to grow your recurring revenue business.

No matter your need or stage of growth, Consero has the best-in-class people, processes, and systems to meet your needs. Book a consultation to start transforming your back-office into a growth engine.