MRR stands for monthly recurring revenue, which businesses monitor to understand their performance and gain insights for strategic decision making. MRR is an especially important metric for subscription businesses.

Below, we’ll cover what MRR is, how it’s calculated, different types of MRR, and how they’re used. We’ll also examine how subscription-based businesses can use MRR to drive growth and optimize business strategy, as well as tips for using MRR data to maximize financial health.

What’s in this article?

• What is monthly recurring revenue (MRR)?
  
• What is the difference between monthly recurring revenue and annual recurring revenue?
  
• Types of MRR
  
• How to calculate MRR
  
• Why MRR is important for businesses
  
• Business-to-business SaaS industry benchmarks for MRR
  
• How to increase MRR
  
• How Stripe can help
  

What is monthly recurring revenue (MRR)?

MRR measures the predictable recurring income generated from customers on a monthly basis. It’s an important metric for subscription-based companies because it helps them forecast future revenue, identify growth trends, and make strategic decisions.

MRR differs from total revenue, which is a measure of a business’s entire revenue from all sources, such as one-time fees, hardware sales, setup charges, and more, in addition to the income brought in via MRR. Total revenue is often less predictable than MRR because it includes income streams that aren’t necessarily recurring or easy to project.

What is the difference between monthly recurring revenue and annual recurring revenue?

Annual recurring revenue (ARR) and MRR are both key financial metrics for subscription businesses, but they differ in the timeframe they measure. ARR measures revenue for a full year, while MRR measures a month’s worth of revenue. When it comes to ARR vs. MRR, many businesses benefit from relying on MRR for short-term analysis and decision-making, especially if their customers are mainly monthly subscribers. Newer businesses without much revenue history to rely on also benefit from using MRR as a reference. ARR, on the other hand, is especially helpful for businesses whose customers operate on multi-year contracts. It can be a useful metric for longer-term planning and forecasting.

Types of MRR

Subscription-based businesses can track different types of MRR to gather insight into their performance, gain a deeper understanding of their subscription revenue growth, and identify areas for improvement:

• New MRR
  MRR generated by new subscribers who have recently signed up for a product or service, representing the growth that occurred in the customer base.

• Expansion MRR
  MRR generated by existing subscribers who have upgraded their subscription or added additional services or features, representing the increase in revenue per customer.

• Churn MRR
  MRR lost due to customers canceling their subscriptions, representing the loss of revenue due to customer attrition during that month.

• Reactivation MRR
  MRR from subscribers who had previously canceled their subscription but have now returned, representing the regained revenue due to customer retention.

• Contraction MRR
  MRR lost due to existing subscribers downgrading their subscription or removing services or features, representing the loss of revenue per customer.

• Net New MRR
  The sum of New MRR and Expansion MRR, minus the Churn MRR and Contraction MRR, representing the overall growth in monthly recurring revenue.

How to calculate MRR

To calculate MRR, multiply the total number of paying customers by the average revenue per user (ARPU) per month. For example, if a company has 100 customers paying $100 per month, their MRR would be $10,000.

The formula for MRR looks like this:

MRR = (number of customers) x (average monthly revenue per customer)

Alternatively, you can calculate MRR by summing up the revenue generated by each subscription plan or product offered by your business.

For example, suppose a business has three subscription plans: Plan A costs $10/month, Plan B costs $20/month, and Plan C costs $30/month. In a given month, the business has 100 customers subscribed to Plan A, 50 customers subscribed to Plan B, and 30 customers subscribed to Plan C. The MRR for the business in that month would be $2,900.

MRR = (100 x $10) + (50 x $20) + (30 x $30) = $2,900

The formula for calculating MRR can vary depending on the type of MRR you’re tracking.

Why MRR is important for businesses

MRR is a powerful metric for companies who use a subscription-based business model, because it allows them to understand how to calculate subscription revenue, predict future revenue, identify growth trends, pinpoint problem areas, and make strategic decisions.

For example, if a company has a steady MRR growth rate of 10% per month, they can predict that their subscription revenue will double every seven months. This information can inform decisions on hiring, product development, and marketing strategy. Similarly, if a company sees a decrease in MRR, it might indicate that they are losing customers. The company can then investigate the cause of the problem and make changes to improve retention.

Here are a few ways businesses can use MRR to its maximum advantage:

How MRR relates to other key business metrics

MRR on its own can yield important insights into the health of a business, but its value increases when businesses consider it in the context of other metrics.

MRR can be used to calculate Customer Acquisition Cost (CAC). This is the cost of acquiring a new customer, calculated by dividing the total cost of sales and marketing by the number of new customers.

Another important metric in relation to MRR is Lifetime Value (LTV), the projected revenue that a customer will bring to a company over their lifetime. This is calculated by multiplying the ARPU by the average customer lifetime.

Gross margin, another useful metric, is the profit a company makes after subtracting the cost of goods sold from the revenue, calculated by multiplying MRR by the gross margin percentage.

MRR is also directly affected by customer churn. In the case of subscription companies, customer churn is the rate at which customers discontinue their subscriptions. As customer churn increases, MRR generally decreases.

Using MRR to understand customer insights

Businesses can also use MRR to track the performance of different customer segments to help identify which segments are the most profitable, and where to focus sales and marketing efforts. For example, a company could measure MRR for enterprise customers, small businesses, and individual customers.

Companies can also measure and analyze customer acquisition and retention to drive efficient, successful acquisition efforts. For example, companies can track how many new customers they’re acquiring each month and where those customers are coming from, and compare those findings to sales and marketing spend. Businesses can also use MRR to track how long customers stay with the company and which factors contribute to customer retention.

MRR’s role in business valuation

MRR is often a closely-watched metric in business valuation, particularly for subscription-based companies, because it provides a clear and predictable view of revenue momentum. Many investors use MRR, along with related factors such as MRR growth rate and expansion trends, to assess the health and scalability of a business. When it comes to fundraising, strong and consistently growing MRR signals to investors that the business likely has product-market fit and predictable cash flows—two important factors in a funding decision.

Business-to-business SaaS industry benchmarks for MRR

Industry MRR benchmarks vary by growth stage, but early-stage SaaS companies are generally expected to grow MRR at around 10–20%, and many investors consider an MRR’s trajectory over the previous 12–18 months when gauging a startup’s health. Depending on the type of customer a company serves, churn benchmarks typically fall between 0.5–7% for healthy business-to-business (B2B) SaaS businesses. Many top companies achieve negative net revenue churn, meaning expansion revenue from existing customers more than offsets cancellations.

How to increase MRR

There are multiple ways to increase MRR, including optimizing pricing strategy, upselling and cross-selling, focusing on high-performing customer acquisition and retention tactics, diversifying revenue streams, and implementing subscription management and billing solutions, like those offered by Stripe.

Optimize pricing strategy

Pricing strategy is one of the most effective ways to increase MRR. Businesses can determine the best pricing strategy by conducting market research or A/B testing. They can also use these insights to offer different pricing plans, such as basic, standard, and premium, to appeal to different customer segments.

Upsell and cross-sell

Upselling means offering customers a higher-priced product or service, while cross-selling is offering customers related products or services. For example, a company that sells a monthly subscription for a software service might upsell customers to a yearly subscription, or cross-sell them features and add-ons like additional storage, advanced reporting and analytics, or integration with other software.

Focus on customer retention

Customer retention is a key priority for recurring revenue businesses. Excellent customer service, a strong customer loyalty program, and continuously improving products and services will typically improve retention. By keeping customers happy, businesses can reduce churn rate, which increases MRR.

Acquire more customers

Customer acquisition is important for MRR, and strategies vary depending on your industry and past successes. Strategies might include expanding the customer base through targeted marketing campaigns, creating new product or service packages to appeal to new market segments, rethinking your company’s online presence, or offering referral incentives to current customers to encourage them to bring in new business.

Diversify revenue streams

Diversifying revenue streams is a powerful way to increase MRR and build additional resiliency into the business. For example, a business that currently generates revenue from only one product or service may expand its offerings to include additional products or services. This can help to mitigate risk and provide a more stable source of revenue.

Read our guide for a deeper dive into proven ways you can boost your company’s MRR.

How Stripe can help

Stripe Billing lets you bill and manage customers however you want—from simple recurring billing to usage-based billing and sales-negotiated contracts. Start accepting recurring payments globally in minutes—no code required—or build a custom integration using the API.

Stripe Billing can help you:

• Offer flexible pricing: Respond to user demand faster with flexible pricing models, including usage-based, tiered, flat-fee plus overage, and more. Support for coupons, free trials, prorations, and add-ons is built-in.

• Expand globally: Increase conversion by offering customers’ preferred payment methods. Stripe supports 125+ local payment methods and 130+ currencies.

• Increase revenue and reduce churn: Improve revenue capture and reduce involuntary churn with Smart Retries and recovery workflow automations. Stripe recovery tools helped users recover over $6.5 billion in revenue in 2024.

• Boost efficiency: Use Stripe’s modular tax, revenue reporting, and data tools to consolidate multiple revenue systems into one. Easily integrate with third-party software.

Learn more about Stripe Billing, or get started today.