What counts and what does not
MRR counts only revenue that repeats: monthly subscriptions at their monthly price, and annual or quarterly plans spread evenly over their months. A customer who pays $240 for a year adds $20 to MRR, not $240 in the month they paid. One-time fees, setup charges, consulting work and usage you cannot expect to repeat stay out.
Discounts count at the price the customer actually pays. Free trials count at zero until the trial converts. Mixing cash received with recurring revenue is the most common mistake, and it makes a month of annual sign-ups look like a jump in growth that is not there.
The parts of MRR growth
Founders usually split the change in MRR into five parts. New MRR comes from new customers. Expansion MRR comes from upgrades and extra seats. Reactivation MRR comes from customers who left and came back. Contraction MRR is lost to downgrades, and churned MRR is lost to cancellations.
Net new MRR is new plus expansion plus reactivation, minus contraction and churned. Watching the parts tells you more than the total: steady new MRR with rising churned MRR means the product is leaking customers as fast as it wins them.
MRR or ARR?
They measure the same thing. Early products with monthly plans usually talk in MRR, because it moves visibly from month to month. Companies selling annual contracts, and most investors once revenue passes about $1 million a year, talk in ARR. Use one consistently in your own reports so the numbers compare.
Example
A tool has 120 customers on a $29 monthly plan and 10 on a $290 annual plan. MRR is 120 × $29 = $3,480, plus 10 × $290 ÷ 12 = $241.67, so $3,721.67 in total, about $3,722. ARR is $3,721.67 × 12, about $44,660. If next month brings $400 of new MRR and $150 of churned MRR, net new MRR is $250.
Questions people ask
- Is MRR the same as monthly revenue?
- No. Monthly revenue is what you collected in the month, including one-time fees and full annual payments. MRR is the recurring part only, with annual plans spread across twelve months.
- How do I calculate ARR from MRR?
- Multiply MRR by 12. A business with $5,000 MRR has $60,000 ARR.
- Should a lifetime deal count towards MRR?
- No. A lifetime deal is a single payment that will not repeat, so it is one-time revenue, however large.
Related terms
- Churn rateChurn rate is the share of customers, or of recurring revenue, that a business loses in a period. Monthly customer churn is the customers who cancelled during the month divided by the customers at the start of it.
- Customer lifetime value (LTV)Customer lifetime value (LTV) is the gross profit a business expects from one customer over the whole time they stay. For a subscription it is usually average revenue per account × gross margin ÷ churn rate.
- BootstrappingBootstrapping is building a company without outside investors, paying for it with the founders' own savings and the revenue the product earns, so the founders keep full ownership and control.
- Lifetime dealA lifetime deal is a one-time payment that gives a customer ongoing access to a software product, sold at a discount, often through marketplaces such as AppSumo, to bring in early paying users.
- Product-market fitProduct-market fit is the point at which a product satisfies a strong demand in a clear market: people use it, keep using it and tell others about it, so growth comes from demand rather than from pushing.