MRR (Monthly Recurring Revenue) is the standardized metric used by subscription businesses (SaaS) to measure the predictable and regular cash flow generated by active subscriptions in a single month.
It is the single most important number for tracking momentum, forecasting future revenue, and calculating the company's valuation (by multiplying it by 12 to get ARR).
The Components of Growth Investors rarely care about the total MRR; they care about Net New MRR, which breaks down the month’s change into four key streams:
- New MRR: Revenue from brand new customers.
- Expansion MRR: Revenue from existing customers who upgraded (upsells).
- Contraction MRR: Revenue lost from existing customers who downgraded.
- Churn MRR: Revenue lost from customers who cancelled their subscription entirely.
Net New MRR = (New + Expansion) – (Churn + Contraction)
The Investor's Focus A major warning for founders: MRR should only include recurring, contractual revenue. You must exclude any one-time fees, such as setup costs, onboarding charges, or consulting fees. Including these inflates the number and will be exposed as fraudulent during due diligence.
Key Takeaway: MRR is the baseline measurement of your company's engine size. A high Expansion MRR (growth from existing users) is the strongest sign of product-market fit.
