MRR (Monthly Recurring Revenue)

What is MRR (Monthly Recurring Revenue)?

MRR (Monthly Recurring Revenue) is the most important SaaS metric, representing the predictable, recurring revenue a company expects to receive each month from active subscriptions. MRR normalizes different billing cycles (annual, quarterly, monthly) into a single monthly figure. According to OpenView (2024), 89% of SaaS companies use MRR as their primary business metric.

Why MRR is Critical

MRR is fundamental for subscription businesses:

• Predictability: Provides reliable revenue forecasting
• Valuation: SaaS companies are often valued as multiples of ARR/MRR
• Growth tracking: Easy to measure month-over-month growth
• Commission basis: Most SaaS commission plans pay on MRR or ARR
• Health indicator: MRR trends reveal business health

According to Bessemer (2024), companies with MRR-based commission plans are 34% more likely to have healthy unit economics.

MRR Calculation

Basic MRR calculation:

MRR = Sum of all monthly subscription values

Or:

MRR = Number of customers × Average Revenue Per Account (ARPA)

Example: Basic MRR Calculation

Customer Segment	Count	Price/mo	MRR
Starter plan	100	$99	$9,900
Pro plan	50	$299	$14,950
Enterprise plan	20	$999	$19,980
Total MRR			$44,830

Converting Annual Contracts to MRR

For annual subscriptions, divide by 12:

• Customer signs $12,000 annual contract
• MRR contribution: $12,000 ÷ 12 = $1,000 MRR

Types of MRR

Type	Description	Example
New MRR	Revenue from brand new customers	10 new customers at $200 = $2,000
Expansion MRR	Additional revenue from existing customers	Upgrade from $200 to $500 = +$300
Contraction MRR	Reduced revenue from existing (negative)	Downgrade from $500 to $300 = -$200
Churned MRR	Lost revenue from canceled customers (negative)	5 customers cancel at $200 = -$1,000
Reactivation MRR	Revenue from returning customers	2 former customers return = +$400

Net New MRR Formula

Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR + Reactivation MRR

Example: Monthly MRR Movement

Category	Amount
New MRR	+$5,000
Expansion MRR	+$2,000
Contraction MRR	-$500
Churned MRR	-$1,500
Reactivation MRR	+$300
Net New MRR	+$5,300

MRR and Commission

MRR is a common basis for commission calculations in SaaS:

Option 1: Commission on First Year MRR

• Commission rate: 10% of first year MRR (MRR × 12)
• New customer: $500 MRR
• Commission: $500 × 12 × 10% = $600

Option 2: Different Rates by MRR Type

• New MRR: 12% commission
• Expansion MRR: 6% commission
• Renewal MRR: 2% commission

MRR vs. ARR

Aspect	MRR	ARR
Period	Monthly	Annual (MRR × 12)
Best for	Monthly tracking, short cycles	Annual planning, investor reporting
Granularity	More detailed	Big picture
Commission basis	Common for SMB sales	Common for enterprise sales

FAQ About MRR

Should one-time fees be included in MRR?

No. MRR should only include recurring revenue. Setup fees, one-time services, and hardware should be excluded.

How are annual contracts handled?

Divide the annual contract value by 12 to get the monthly MRR contribution.

When is MRR vs. ARR used for commission?

MRR is most common for SMB sales with shorter sales cycles. ARR is typically used for enterprise sales with larger deals and longer contracts.

Automate MRR-Based Commission with Prowi

MRR is the heart of any subscription business. With Prowi, you can automatically calculate commissions based on MRR, track different MRR types with different rates, and give reps real-time visibility into their MRR performance.