What Is Monthly Recurring Revenue?

MRR is the heartbeat of any subscription business. Unlike one-time revenue, MRR represents committed, recurring income that the company can reasonably expect to continue receiving each month, barring cancellations. This predictability makes it the primary metric for SaaS financial planning.

MRR is calculated by summing the monthly value of all active subscriptions. Annual contracts should be normalised to monthly values (divide by 12). Multi-year contracts are treated the same way. One-time fees, professional services revenue, and usage-based overages are typically excluded.

MRR movement is analysed through its components: New MRR (from new customers), Expansion MRR (upgrades, upsells, cross-sells to existing customers), Contraction MRR (downgrades), and Churn MRR (cancellations). Net New MRR = New + Expansion - Contraction - Churn. This decomposition reveals the health of the business beyond headline growth.

For FP&A teams, MRR is the starting point for revenue forecasting. Building a bottoms-up MRR forecast involves modelling new customer acquisition (from sales pipeline), churn rates (historical or assumed), and expansion rates (from upsell motions). This granularity enables accurate revenue projections and sensitivity analysis.

UK SaaS companies should note that MRR and recognised revenue may differ due to accounting standards. IFRS 15 / FRS 102 Section 23 may require revenue recognition adjustments for contracts with variable consideration, discounts, or bundled deliverables.