How to calculate MRR
Add up the monthly value of every active paid subscription. A monthly plan counts at its monthly price. An annual or quarterly plan is spread evenly across its months, so a $1,200 annual plan adds $100 of MRR every month, not $1,200 in the month it was paid. Seats and other recurring quantities count at their current quantity, and a recurring discount counts at the price the customer actually pays.
Leave out anything that does not repeat: setup fees, one-off charges, refunds of past invoices. A subscription in a free trial counts as zero until its first paid period starts. Usage charges are a judgment call: some businesses leave them out because they swing from month to month, others include a trailing average. Pick one rule and keep it.
MRR = sum of (recurring price × quantity ÷ months in the billing period), over every active paid subscription
Worked example
A small software company has 40 customers on a $50 monthly plan, 10 customers on a $1,200 annual plan, and 5 customers still in a free trial. This month it also charged one $500 setup fee.
- 40 monthly customers × $50
- $2,000
- 10 annual customers × $1,200 ÷ 12
- $1,000
- 5 customers in a free trial
- $0
- One setup fee (does not repeat)
- $0
- MRR
- $3,000
The setup fee is real revenue this month, but it will not happen again next month, so it stays out of MRR.
Why MRR matters
MRR tells you whether the business is growing. Revenue counted as cash jumps around when annual plans renew or a large invoice is paid; MRR smooths that out, so this month and last month compare like for like.
Most other subscription metrics are built on it. ARR is MRR times twelve, ARPU is MRR divided by paying customers, and churn and retention are measured as MRR lost or kept. If MRR is counted loosely, every number downstream inherits the error.
How MRR moves matters as much as the total. Net new MRR splits the change into new customers, expansion from upgrades, contraction from downgrades and churn from cancellations, which shows you where growth is coming from and where it leaks.
Common mistakes
- Counting an annual payment in one month A $1,200 annual renewal booked as $1,200 of MRR makes one month look twelve times better than it is, and the next eleven look like a collapse.
- Including one-off charges Setup fees, onboarding packages and hardware are revenue, but not recurring revenue. They belong in your revenue report, not in MRR.
- Counting trials as paying customers A trial is a prospect. It joins MRR on its first paid period.
- Adding currencies together Dollar MRR plus euro MRR is not a number until you pick an exchange rate and say which. Report each currency on its own, or convert at a stated rate.