Monthly Recurring Revenue (MRR) is the single most important metric for any business that sends recurring invoices. It represents your predictable, repeatable monthly revenue and is the foundation for financial planning.
The Basic Formula
MRR = Sum of all active monthly recurring invoice amounts. If you have 10 clients each paying $500/month, your MRR is $5,000.
Normalizing Non-Monthly Invoices
For clients on non-monthly billing, convert to monthly equivalents. Annual billing: divide by 12. Quarterly billing: divide by 3. A $12,000 annual client contributes $1,000/month to your MRR.
MRR Components
Breaking MRR into components reveals what is driving changes. Track New MRR from clients acquired this month, Expansion MRR from upsells and upgrades, Contraction MRR from downgrades, Churned MRR from cancellations, and Net New MRR which is the sum of all four.
Common Mistakes
Do not include one-time project revenue in MRR. Do not count signed contracts that have not started billing. Do not include invoices that are unlikely to be collected. MRR should reflect only active, collectible recurring billing.
Using MRR for Planning
Once you know your MRR, you can forecast annual revenue (MRR × 12), calculate how much new business you need to hit growth targets, understand the impact of churn on your revenue, and make informed decisions about pricing, hiring, and investment.