How to Calculate Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is the predictable, recurring revenue a subscription business expects to receive each month. It's one of the most important metrics for SaaS and subscription companies because it indicates the health and momentum of the recurring revenue base.

Basic MRR Formula

The fundamental MRR calculation is:

MRR = Sum of all active subscription values, normalized to monthly

Normalization matters: A customer paying $12,000/year contributes $1,000/month to MRR, same as a customer paying $1,000/month directly.

Step-by-Step Calculation

Step 1: Identify Active Subscriptions

Include all subscriptions where:

• Status is "active" (not churned, paused, or trial)
• The subscription period includes the measurement date
• The customer is in paying status

Step 2: Normalize to Monthly Value

Convert all subscription values to monthly equivalents:

Billing Period	Conversion
Monthly	Value as-is
Quarterly	Value ÷ 3
Annual	Value ÷ 12
Multi-year	Value ÷ (months in term)

Step 3: Apply Exclusions

Exclude amounts that aren't recurring:

• One-time setup fees
• Professional services
• Overages and usage charges (unless contracted minimums)
• Discounts that aren't ongoing

Step 4: Sum All Values

MRR = Σ (Normalized monthly value for each active subscription)

MRR Movement Components

Understanding how MRR changes is as important as the total. Track these components:

New MRR

Revenue from new customers acquired in the period:

New MRR = Sum of MRR from customers who started this period

Expansion MRR

Additional revenue from existing customers (upgrades, add-ons):

Expansion MRR = Sum of MRR increases from existing customers

Contraction MRR

Reduced revenue from existing customers (downgrades):

Contraction MRR = Sum of MRR decreases from customers who didn't churn

Churned MRR

Revenue lost from customers who cancelled:

Churned MRR = Sum of MRR from customers who churned this period

Net New MRR

The net change in MRR:

Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR

Common MRR Calculation Mistakes

Mistake 1: Including Non-Recurring Revenue

One-time charges, services, and overages inflate MRR and distort trends. Be strict about what "recurring" means.

Mistake 2: Wrong Normalization

Failing to normalize annual contracts understates MRR (if counting actual monthly payments) or overstates it (if counting full annual value).

Mistake 3: Timing Errors

MRR should reflect the subscription value for the period, not when payment was received. A January payment for a February subscription is February MRR.

Mistake 4: Inconsistent Filters

Trial subscriptions, internal accounts, and test data can inflate MRR if not consistently excluded.

Mistake 5: Currency Confusion

Multi-currency subscriptions need consistent conversion. Define whether to use transaction-date rates, month-end rates, or fixed rates - and apply consistently.

Example Calculation

Company has these active subscriptions:

Customer	Billing	Contract Value	Monthly MRR
Acme Corp	Annual	$24,000	$2,000
Beta Inc	Monthly	$500	$500
Gamma LLC	Quarterly	$3,000	$1,000
Delta Co	Annual	$6,000	$500

Total MRR = $2,000 + $500 + $1,000 + $500 = $4,000

MRR in Context-Aware Analytics

A well-governed MRR metric includes:

metric:
  name: MRR
  description: Monthly Recurring Revenue - normalized subscription value
  calculation: |
    SUM(
      contract_value /
      CASE billing_period
        WHEN 'monthly' THEN 1
        WHEN 'quarterly' THEN 3
        WHEN 'annual' THEN 12
      END
    )
  filters:
    - subscription_status = 'active'
    - subscription_type NOT IN ('trial', 'internal', 'test')
  dimensions: [customer_segment, product, region]
  currency: USD
  owner: finance_team

With this definition, MRR is consistent everywhere - dashboards, reports, AI queries - eliminating confusion about how it's calculated.