Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue, or MRR, is the heartbeat metric of any subscription business. It represents the total predictable revenue normalized to a monthly figure. A customer on a $1,200/year plan contributes $100/month to MRR, just as a customer on a $100/month plan does. This normalization allows businesses to track growth consistently regardless of billing cycle mix.

MRR is calculated by summing the monthly-normalized value of all active subscriptions. It excludes one-time charges (like setup fees), variable usage charges that are not guaranteed, and any revenue from non-recurring sources. The formula is straightforward: MRR = Sum of (each active subscription's monthly-equivalent price).

MRR is typically decomposed into components that reveal growth dynamics. New MRR comes from newly acquired customers. Expansion MRR comes from existing customers upgrading or adding seats. Contraction MRR represents downgrades. Churned MRR represents canceled subscriptions. Reactivation MRR comes from previously churned customers returning. Net new MRR = New + Expansion + Reactivation - Contraction - Churned.

Understanding MRR composition is essential because a business growing at 5% monthly could be masking a serious problem. If growth comes entirely from new customer acquisition while churned MRR is accelerating, the business is on an unsustainable path. Healthy subscription businesses grow MRR through a combination of acquisition and expansion while keeping churn below 2-3% monthly for SMB or below 1% for enterprise.

Failed payments directly erode MRR through involuntary churn. If 7% of charges fail each month and only 50% are recovered, the business loses 3.5% of MRR to payment failures alone — often more than voluntary cancellations. LostChurn helps protect MRR by recovering failed payments before they become churned subscriptions.