MRR (Monthly Recurring Revenue): Business Meaning and Definition

Patrick Ward Patrick Ward Follow May 15, 2024 · 1 min read
MRR (Monthly Recurring Revenue): Business Meaning and Definition

Business Definition of “MRR”

The acronym “MRR” stands for “Monthly Recurring Revenue”. MRR is a valuable metric for SaaS (Software as a Service) businesses. It refers to the monthly revenue generated from subscriptions, before subtracting expenses, labor, cost of customer aquisition, and etc.

How to Calculate MRR

The simplest way of calculating MRR is to sum the fees charged to individual customers. For example, if you have three customers paying $10/month, your MRR is $30.

This can be roughly multiplied out 12 times to claim an Annual Recurring Revenue (ARR) of $360. It’s more common for early-stage indie developer projects to claim ARR than MRR, since ARR is a larger number which sounds more impressive.

Why is MRR Important?

MRR matters for SaaS businesses because it’s a predictable, scalable source of income with a high degree of sustainability compared to one-off payments e.g. from client service work or one-time-use product sales.

MRR is a helpful metric because when combined with CPA (Cost Per Aquisition), it provides a clear picture of the growth curve for a software business. It’s particularly meaningful for SaaS businesses because the incrimental cost of servicing customers is usually close to zero, outside of customer support staff and engineering maintenance. Compared with physical product businesses that charge monthly recurring fees (such as subscription “box” services), MRR provides an easy-to-understand measurement of the financial health of the business.

What Does MRR Mean in Stripe Dashboard?

The MRR shown in a Stripe dashboard is “normalized” to account for cancellations, plan upgrades, plan downgrades, and cancellations. All user actions will immediately impact the metric shown by Stripe, with the exception of payment failures, which enter a grace period before the customer is considered to be “churned.” See Stripe’s official documentation for more context on Stripe MRR calculation.

MRR is commonly used by founders of bootstrapped startups, who often set in terms of MRR because this metric makes it easy to compare the income generated by a small business with the monthly salary the founder likely gave up in order to start the business.

Patrick Ward
Written by Patrick Ward Follow
Hi, I'm Patrick. I made this site to share my expertise on team augmentation, nearshore development, and remote work.