The short answer
Monthly recurring revenue (MRR) is the predictable subscription revenue a company earns in a month, normalized to a monthly amount. Annual contracts are divided by 12. Founders track how MRR moves each month: new, expansion, contraction and churn.
- MRR is recurring revenue normalized to one month.
- Annual contracts count as one-twelfth per month.
- Track net new MRR: new + expansion − contraction − churn.
- MRR × 12 gives ARR for monthly businesses.
How to calculate it
Sum the monthly value of every active recurring subscription. Convert annual or quarterly contracts to a monthly amount. Exclude one-time fees, usage spikes you don't expect to repeat, and discounts that have expired from the base.
Worked example (hypothetical)
| Movement in May | MRR |
|---|---|
| Starting MRR (April 30) | $40,000 |
| New customers | +$6,000 |
| Expansion (upgrades) | +$2,000 |
| Contraction (downgrades) | −$500 |
| Churn (cancellations) | −$1,500 |
| Ending MRR (May 31) | $46,000 |
Net new MRR is $6,000, or 15% growth on $40,000. Your ARR on a monthly basis is $46,000 × 12 = $552,000.
Why it matters to a pre-seed or seed founder
MRR growth is the clearest early signal for subscription businesses, and the breakdown tells investors more than the total: strong expansion and low churn suggest customers love the product. Report MRR the same way every month in your investor updates, and pair it with burn rate to show efficiency.
Frequently asked questions
Do annual prepayments count as MRR?
Yes, divided by 12. The cash arrives up front, but MRR spreads it evenly across the contract.
Should free trials count?
No. Count customers only once they're paying.
What's net new MRR?
New plus expansion MRR, minus contraction and churn, for the period.