If you run an e-commerce store selling shoes, you wake up every month with $0 in revenue and have to hustle to make sales.

If you run a subscription business (like Netflix, Spotify, or a SaaS company), you wake up on the 1st of the month with money already in the bank.

MRR (Monthly Recurring Revenue) is the total predictable revenue a business expects to receive every month from active subscriptions.

It is the heartbeat of the modern “Subscription Economy.” Unlike traditional revenue, which looks at the past (what you sold), MRR looks at the future (what you are guaranteed to make). This predictability is why software companies are valued so much higher than retail companies.

I will break down the formula, the components of “Net MRR,” and the one mistake that ruins your data.

The Basic Formula

At its simplest level, MRR is calculated by multiplying your total number of paying customers by the average amount they pay per month (ARPU).

Example:

• You have 100 customers.

• They each pay $50/month.

• MRR = $5,000.

This means, barring any cancellations, you can count on $5,000 next month without selling a single new unit.

The “Real” Metric: Net New MRR

The basic number is useful, but it doesn’t tell you how you are growing. Are you getting new customers, or just upselling old ones? Are you losing customers as fast as you find them?

To understand growth, you must track Net New MRR.

1. New MRR (The Hunter)

Revenue from brand new customers gained this month.

• Marketing’s Job: Drive leads to increase this number.

2. Expansion MRR (The Farmer)

Revenue from existing customers who upgraded their plan (e.g., moving from “Basic” to “Pro”).

• Product/Success Job: Upsell and cross-sell.

• Golden Rule: If your Expansion MRR is higher than your Churn, you have “Negative Churn,” which is the holy grail of SaaS. You grow even if you don’t sign a single new customer.

3. Churned MRR (The Leaky Bucket)

Revenue lost from customers who cancelled or downgraded.

• The Enemy: Churn is the silent killer. If you add $1,000 in New MRR but lose $1,000 in Churned MRR, your growth is flat (0%).

What NOT to Include in MRR (The Common Mistake)

Founders often try to inflate their MRR to look better to investors. This is dangerous.

Never include:

• One-time Setup Fees: If you charge $500 for “Onboarding,” that is revenue, but it is not recurring. It will not happen next month.

• Consulting Services: Non-repeatable income.

• booked (but not active) contracts: Only count money from users who are currently live and paying.

Why? MRR is a measure of momentum. Including one-off fees creates a “lumpy” graph that lies about the stability of your business.

Why Investors Obsess Over MRR

If you try to sell a shoe store, you might get 1x or 2x your annual profit.

If you sell a SaaS company with high MRR, you might get 10x or 20x your annual revenue.

Why the difference? Predictability.

Investors pay a premium for MRR because it reduces risk. They know exactly how much cash the business generates.

• For Marketers: This means a customer on a $10/month subscription is worth significantly more to the company than a customer who buys a $100 item once. This justifies spending a much higher CPA (Cost Per Acquisition) to get them.

Conclusion

MRR is not just an accounting term; it is a mindset. It shifts the focus from “closing the sale” to “keeping the customer.” In digital marketing, this means your job isn’t done when they click “Buy”; your job is done when they renew next month.