MRR
Monthly Recurring Revenue (MRR) is a key metric for measuring the predictable revenue generated by your subscriptions. It provides a snapshot of how much recurring revenue your business can expect to generate each month at any given time.
We calculate MRR by converting the recurring revenue from all of your customers into a monthly figure. Whenever a new customer subscribes, their contribution is added to the total.
How is MRR broken down?Copied!
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MRR Activity |
Definition |
|---|---|
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New |
MRR generated from customers who subscribe for the first time (they have never paid for a subscription before). |
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Expansion |
MRR increases in value |
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Contraction |
MRR decreases in value |
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Churn |
MRR lost from customer cancellations, whether voluntary or involuntary (such as automatic cancellations due to failed or unrecoverable payments). |
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Reactivation |
MRR from customers that had previously churned but are now back on a paid subscription. |
By breaking down revenue into these specific categories (New, Expansion, Reactivation, Contraction, and Churn), companies can:
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Accurately forecast revenue and growth
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Identify which areas of the business need attention (e.g., high churn might indicate product or pricing issues)
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Make data-driven decisions about where to invest resources (e.g., focusing on expansion vs. acquisition)
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Compare performance across different time periods and subscription types, regardless of billing frequency
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Calculate important derived metrics like net revenue retention (NRR) and customer lifetime value (LTV)
How are intra-month changes represented?Copied!
If multiple subscription changes occur for a customer within the same month, we consolidate them to show the net result for that month.
For example, if a customer signs up and churns within the same month, we exclude them from your metrics. This avoids inflating churn due to customers who likely aren’t a fit (they were never actually a recurring subscriber to begin with).
Similarly, if a customer signs up and upgrades within the same month, we count them as a new customer with the total upgrade amount, instead of classifying it as expansion revenue, since they likely qualified for the higher plan from the start.
In cases where a customer signs up, upgrades to a high-tier plan, and then churns within the same month, we treat the net impact as zero. This prevents extreme fluctuations in your metrics that don’t accurately reflect long-term trends.
We treat MRR as a momentum metric, focused on actionable insights. Bundling changes at the intra-month level ensures that your metrics remain accurate and free from unnecessary distortions.
What is excluded from MRR?Copied!
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Revenue from one-time charges/fees
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Free trials/100% discounted subscriptions
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Taxes
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MRR from customers who sign up for a paid subscription and cancel it within the same month
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Refunds and credits
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The only exception here is if a customer cancels their subscription mid-cycle and gets a full refund for it. We will include a refund into your MRR here because you will no longer receive recurring revenue from this user, and they’re effectively churned.
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