MRR / ARR
Definition & meaning
Definition
MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) are the primary financial metrics for subscription-based businesses. MRR measures the total predictable revenue a company expects each month from all active subscriptions, while ARR projects this to an annual figure (ARR = MRR × 12). These metrics are critical for valuing SaaS companies, forecasting growth, and making business decisions. MRR is broken down into components: New MRR (from new customers), Expansion MRR (from upgrades), Contraction MRR (from downgrades), and Churned MRR (from cancellations). Net MRR Growth = New + Expansion - Contraction - Churned. A healthy SaaS company targets Net Revenue Retention above 110%, meaning existing customers generate more revenue over time through upgrades even after accounting for churn.
How It Works
MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) measure the predictable, repeatable revenue a subscription business generates. MRR is calculated by summing all active monthly subscription fees — if you have 100 customers paying $50/month, your MRR is $5,000. ARR is simply MRR multiplied by 12, giving an annualized view. These metrics decompose into sub-components: New MRR (from new customers), Expansion MRR (upgrades and add-ons), Contraction MRR (downgrades), and Churned MRR (cancellations). Net New MRR equals new plus expansion minus contraction minus churned. Tracking these components separately reveals whether growth comes from acquisition or expansion, and whether you have a retention problem. One-time charges, setup fees, and usage overages are typically excluded from MRR calculations to maintain the "recurring" integrity of the metric.
Why It Matters
MRR and ARR are the heartbeat metrics of any subscription business. Investors use ARR to value SaaS companies — multiples of ARR determine acquisition prices and fundraising valuations. For builders, MRR tells you if your business is actually growing in a sustainable way, unlike one-time revenue spikes. Tracking MRR components lets you diagnose problems early: if expansion MRR is flat while new MRR grows, you are not delivering enough value post-acquisition. If churned MRR exceeds new MRR, you are in a death spiral regardless of how many new customers you sign. Decision-makers use these metrics to forecast cash flow, plan hiring, and determine when to invest in new product lines. Without clean MRR tracking, you are flying blind.
Real-World Examples
A SaaS tool like Ahrefs charges monthly subscriptions starting at $99/month — each paying subscriber contributes directly to MRR. Stripe provides built-in MRR dashboards through Stripe Billing, making it straightforward for developers to track recurring revenue without building custom analytics. Baremetrics and ChartMogul are dedicated MRR analytics platforms that connect to payment providers and decompose MRR into its components. At ThePlanetTools.ai, we evaluate many subscription-based tools — Vercel's Pro plan at $20/user/month and Supabase's Pro tier at $25/month are examples of products where MRR drives the business. ProfitWell (now Paddle) offers free MRR tracking that many startups rely on for investor reporting.
Related Terms
LTV (Lifetime Value)
BusinessTotal expected revenue from a single customer over their entire relationship.
Freemium
BusinessBusiness model offering a free basic product with paid premium features.
Churn Rate
BusinessPercentage of customers who cancel their subscription in a given period.
SaaS
BusinessCloud software accessed via subscription instead of local installation.