How to Calculate MRR for Your SaaS Business
If you run a SaaS business, Monthly Recurring Revenue is the single most important number on your dashboard. It tells you how much predictable income your business generates every month, and it forms the foundation for nearly every other metric investors, operators, and founders care about.
Yet despite its importance, MRR is frequently miscalculated. Founders mix in one-time charges, forget to account for discounts, or ignore the components that make MRR truly actionable. This guide walks through exactly what MRR is, how to calculate it correctly, and why getting it right matters more than you think.
What Is MRR?
Monthly Recurring Revenue is the normalized monthly value of all active subscriptions in your business. The key word is recurring, meaning it only includes revenue that you can reasonably expect to receive again next month.
If a customer pays $1,200 per year on an annual plan, their contribution to MRR is $100 per month, not $1,200 in the month they paid. If a customer made a one-time purchase for a setup fee, that revenue does not count toward MRR at all.
This normalization is what makes MRR so powerful. It smooths out the lumpiness of different billing cycles and gives you a clean, comparable number month over month.
Why MRR Is the North-Star Metric
There are dozens of metrics a SaaS founder could track, but MRR earns its status as the north-star metric for several reasons:
- Predictability. MRR tells you what revenue to expect next month, assuming no changes. That baseline makes financial planning possible.
- Growth measurement. Comparing MRR month over month is the clearest way to measure whether your business is growing, stalling, or shrinking.
- Valuation basis. Investors typically value SaaS companies as a multiple of ARR (Annual Recurring Revenue), which is simply MRR multiplied by twelve.
- Operational clarity. When you decompose MRR into its components, you can pinpoint exactly where growth is coming from and where you are leaking revenue.
The Four Components of MRR
Raw MRR is useful, but breaking it into components is where the real insight lives. Every month, your MRR changes due to four forces:
1. New MRR
Revenue from customers who subscribed for the first time this month. If ten new customers each sign up for a $50/month plan, you added $500 in New MRR.
2. Expansion MRR
Additional revenue from existing customers who upgraded their plan, added seats, or moved to a higher tier. Expansion MRR is one of the most efficient growth levers because it does not require acquiring a new customer.
3. Contraction MRR
Revenue lost from existing customers who downgraded their plan or reduced their usage. This is different from churn because the customer is still paying you, just less than before.
4. Churned MRR
Revenue lost from customers who cancelled entirely. This is the most painful component and the one that compounds fastest if left unchecked.
Your Net New MRR for any given month is:
Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR
A healthy SaaS business aims for positive Net New MRR every month, ideally with Expansion MRR large enough to offset churn on its own (a state known as net negative churn).
How to Calculate MRR Step by Step
Here is the practical process for calculating MRR from your billing data:
Step 1: List all active subscriptions. Pull every subscription that was active at the end of the month, regardless of billing interval.
Step 2: Normalize to monthly values. Convert all subscription amounts to their monthly equivalent. Annual plans get divided by twelve. Quarterly plans get divided by three.
Step 3: Exclude non-recurring revenue. Remove one-time charges, setup fees, consulting revenue, and any other income that will not repeat next month.
Step 4: Account for discounts and coupons. Use the amount the customer actually pays, not the list price. If a customer is on a 20% discount coupon, their MRR contribution is the discounted amount.
Step 5: Sum it up. Add all the normalized monthly values together. That total is your MRR.
Step 6: Categorize the change. Compare to last month and categorize the difference into New, Expansion, Contraction, and Churned MRR.
Common MRR Calculation Mistakes
Even experienced founders get tripped up by these:
Including one-time payments
Setup fees, implementation charges, and hardware sales are not MRR. Including them inflates your number and creates misleading trends. Keep them in a separate revenue category.
Counting invoiced revenue instead of recognized revenue
If a customer is invoiced but has not paid (and may never pay), counting that as MRR is premature. For early-stage companies with good collection rates this may be acceptable, but be aware of the distinction.
Ignoring free trials and freemium users
Users on a free plan contribute $0 to MRR. This seems obvious, but some founders count “expected conversions” or “pipeline MRR.” Do not do this. MRR should reflect reality, not projections.
Not normalizing annual plans
This is perhaps the most common mistake. A customer who pays $1,200 annually contributes $100/month to MRR, not $1,200 in January and $0 for the next eleven months. Failing to normalize creates wild month-to-month swings that hide your actual growth rate.
Double-counting mid-month upgrades
If a customer upgrades mid-month, be careful not to count both their old and new plan amounts. The correct approach is to use their plan value at the end of the month for that month’s MRR snapshot, and record the difference as Expansion MRR.
MRR Benchmarks Worth Knowing
While every business is different, a few benchmarks can help you calibrate:
- MRR growth rate: Early-stage SaaS companies (under $1M ARR) often target 15-20% month-over-month growth. Post-product-market-fit, 5-10% monthly growth is strong.
- Net Revenue Retention: Best-in-class SaaS companies achieve 120%+ net revenue retention, meaning expansion from existing customers more than offsets all churn and contraction.
- Gross churn rate: Losing more than 5% of MRR to churn each month is a red flag that needs immediate attention.
Automating MRR Tracking
Manually calculating MRR from raw Stripe data is tedious and error-prone, especially as your customer base grows. You need to normalize billing intervals, handle proration, account for coupons, and categorize every change correctly.
This is where a dedicated analytics layer pays for itself. Subdash connects directly to your Stripe account and automatically calculates MRR and its components in real time, handling the normalization, categorization, and historical tracking that would take hours to do in a spreadsheet. It is particularly useful if your business has a mix of subscription and one-time revenue, since it tracks both without conflating them.
Whatever tool you choose, the important thing is to have a single source of truth for MRR that your entire team can reference. Inconsistent MRR calculations across spreadsheets, investor decks, and board presentations erode trust and lead to bad decisions.
Beyond MRR: Metrics That Build on It
Once you have accurate MRR, several other critical metrics become easy to derive:
- ARR (Annual Recurring Revenue): MRR multiplied by 12. Used for valuation and annual planning.
- ARPU (Average Revenue Per User): MRR divided by total active subscribers. Tracks whether you are moving upmarket or down.
- LTV (Lifetime Value): ARPU divided by monthly churn rate. Estimates the total revenue a customer will generate.
- Quick Ratio: (New MRR + Expansion MRR) divided by (Churned MRR + Contraction MRR). A ratio above 4 indicates very healthy growth efficiency.
Each of these metrics is only as accurate as the MRR calculation underlying it. Get MRR right, and the rest of your metrics fall into place.
Start With Clean Data
The foundation of accurate MRR is clean billing data. If your Stripe account is full of test subscriptions, miscategorized charges, or legacy plans with inconsistent naming, your MRR calculation will inherit all of that messiness.
Take the time to audit your Stripe setup. Archive test data, standardize your plan names, and ensure your pricing tiers are clearly structured. The payoff is not just better metrics. It is better decision-making across your entire business.
MRR is not a vanity metric. It is the heartbeat of your SaaS business. Calculate it correctly, track it consistently, and let it guide your strategy.