A point-in-time operating metric that normalizes eligible active subscription and recurring contract value to a monthly amount.
Monthly recurring revenue (MRR) is a point-in-time operating metric that normalizes the eligible recurring value of active customer subscriptions or contracts to a monthly amount. It is commonly used to track the scale and movement of subscription businesses, but it is not a standardized accounting measure or a substitute for recognized revenue.
A useful MRR definition states which products, fees, customers, currencies, and contract statuses are included. It should also explain how annual contracts, discounts, usage, pauses, delinquent accounts, and scheduled changes are handled.
For fixed monthly subscriptions:
For a fixed contract billed over several months, a common normalization is:
This formula is a KPI convention, not a revenue-recognition rule. A company can use a different disclosed method, particularly for ramp contracts, usage-based arrangements, foreign currency, or partial periods.
| Item | Common MRR direction | Reason to review |
|---|---|---|
| Fixed monthly subscription | Include | Active recurring monthly value |
| Annual subscription | Normalize to monthly value | Billing frequency differs from the run rate |
| Multi-year fixed subscription | Normalize over the applicable term | Contract ramps and termination rights can matter |
| Recurring support or maintenance | Include if policy permits | Confirm it is active and recurring |
| Usage or transaction fees | Include, exclude, or estimate under a stated policy | Amount can be seasonal and uncertain |
| One-time implementation | Exclude | Not recurring merely because sold with a subscription |
| Hardware sale | Usually exclude | Point-in-time product revenue rather than recurring service |
| Refund, credit, or discount | Reflect consistently | Can reduce contract value or recognized revenue |
| Signed but not active contract | Usually exclude from active MRR | Bookings and active run rate are different metrics |
The inclusion of professional services, minimum usage commitments, and contracts pending renewal varies widely. The definition should be specific enough that another reader can reproduce the calculation.
Assume three active customers have these fixed recurring arrangements:
| Customer | Contract | Monthly normalized value |
|---|---|---|
| A | $300 billed monthly | $300 |
| B | $3,600 billed annually | $300 |
| C | $4,800 fixed value over 12 months | $400 |
| Total MRR | $1,000 |
Billing frequency does not change the normalized monthly value in this simplified example. Customer B may pay $3,600 at once while Customer A pays monthly, but both contribute $300 of MRR under the stated method.
Assume a company starts the month with $200,000 of MRR:
| MRR movement | Amount |
|---|---|
| Opening MRR | $200,000 |
| New MRR | $25,000 |
| Expansion MRR | $15,000 |
| Contraction MRR | ($8,000) |
| Churned MRR | ($12,000) |
| Ending MRR | $220,000 |
Net new MRR is $20,000:
Gross MRR retention is 90% because it excludes both new customers and expansion:
Net MRR retention is 97.5% because it includes expansion within the opening customer base:
Total MRR grew 10%, but the opening customer base contracted by 2.5% on a net basis. New customer acquisition supplied the difference.
Suppose a customer pays $1,200 on January 1 for a one-year service. Under a simplified straight-line service pattern:
| Measure | January amount or balance |
|---|---|
| MRR at January month-end | $100 |
| Cash collected in January | $1,200 |
| Revenue recognized in January | $100 |
| Contract liability after January service | $1,100 |
The $100 MRR describes normalized active recurring value. The $1,200 cash collection reflects billing and payment timing. The $100 recognized revenue reflects January service, and the remaining liability reflects service still owed. More complex contracts can have multiple obligations, usage, variable consideration, or different recognition patterns.
Usage-based MRR can be useful, but the method should be explicit. Possible approaches include current-month usage, a recent-month average, a committed minimum, or exclusion from MRR. Annualizing a seasonal peak can overstate the run rate, while using only a minimum commitment can understate expected activity.
Ramp contracts also need care. If a contract schedules 100 seats now and 300 later, current active MRR, average contract value, and fully ramped MRR are different metrics. Including future scheduled value in current MRR without a clear label can mislead.
MRR is a company-defined operating metric. This article provides general financial education, not accounting, valuation, business, contract, or investment advice.