What is MRR (Monthly Recurring Revenue)?

MRR is calculated by summing the normalized monthly value of every active subscription. A customer on an annual plan costing $1,200 per year contributes $100 to MRR — not $1,200 in the month they paid. This normalization is what makes MRR useful as a run-rate measure: it shows what the business earns each month from its current customer base, independent of when those customers happened to renew.

The components that move MRR are: new MRR from new customers, expansion MRR from upgrades, contraction MRR from downgrades, and churned MRR from cancellations. Watching those four numbers separately is more useful than watching total MRR alone. A flat MRR with high churn offset by high new sales is a leaky bucket. The same flat MRR with low churn and low new sales is a stable base. Same number, very different business.