MRR (Monthly Recurring Revenue) represents the total predictable revenue a business earns each month from subscriptions, memberships, and recurring contracts. For subscription e-commerce, MRR is the primary metric for tracking growth and financial health.
What is MRR?
MRR normalizes all recurring revenue to a monthly figure. This creates a consistent metric for tracking growth regardless of billing frequency (monthly, quarterly, annual).
MRR includes:
- Monthly subscription payments
- Annual subscriptions divided by 12
- Recurring service fees
- Membership dues
MRR excludes:
- One-time purchases
- Setup or onboarding fees
- Variable or usage-based charges
- Non-recurring discounts
How to Calculate MRR
MRR = Number of subscribers × Average revenue per user (ARPU)
For mixed billing periods:
MRR = Sum of (Each subscription's monthly equivalent value)
Example: 200 monthly subscribers at $30/month + 50 annual subscribers at $300/year.
Monthly portion: 200 × $30 = $6,000 Annual portion: 50 × ($300 / 12) = $1,250 Total MRR: $7,250
MRR Components
Breaking down MRR changes reveals growth drivers:
New MRR: Revenue from new customers acquired this month : Additional revenue from existing customers (upgrades, add-ons) Contraction MRR: Lost revenue from downgrades Churned MRR: Lost revenue from cancellations Reactivation MRR: Revenue from returning customers
Net New MRR = New + Expansion + Reactivation - Contraction - Churn
MRR Growth Rate
MRR Growth Rate = ((Current MRR - Previous MRR) / Previous MRR) × 100
Healthy subscription businesses typically grow MRR 10-20% month-over-month in early stages, slowing to 2-5% as they scale.
How to Interpret MRR
MRR provides baseline revenue expectations but does not guarantee cash flow. Consider:
Collection timing: Annual prepayments improve cash flow but inflate MRR relative to actual monthly collections.
: Breakdown by customer cohort reveals whether growth comes from new acquisition or expansion.
Quick ratio: (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR). Above 4 indicates healthy growth.
MRR vs ARR
MRR (monthly recurring revenue) measures predictable subscription revenue per month. () is the yearly version, usually MRR multiplied by twelve. Teams watch MRR for short-term changes like new signups and cancellations, and use ARR for annual planning and reporting on longer contracts.
