A SaaS startup’s heartbeat — learn what MRR is, how to calculate it, and why VCs care so much about it.
What is MRR?
Monthly Recurring Revenue (MRR) is the total predictable monthly income a SaaS business earns from its subscription-based customers.
It excludes one-time payments (like setup fees, hardware sales or services) and focuses only on repeatable, contract-based income.
Why MRR Matters
Here’s why MRR is one of the most critical metrics for founders and investors:
- Predictability – Offers a clear monthly revenue stream that helps with future income forecasting.
- Growth Measurement – Shows how fast your subscription business is scaling.
- Customer Insight – When tracked properly and combined with other metrics, it explains churn, expansion, and customer stickiness.
- VC Magnet – MRR growth rate is a favourite KPI for investors during fundraising discussions.
How to Calculate MRR
There are multiple components, but the basic formula is:
MRR = Total number of paying customers × Average monthly revenue per customer (Or Account) (ARPU)
Example:
You have 100 customers, each paying ₹2,000/month
MRR = 100 × ₹2,000 = ₹2,00,000/month
To track growth more precisely, break MRR into these categories:
| MRR Type | Definition | Example |
|---|---|---|
| New MRR | Revenue from new customers this month | 10 new customers @ ₹2,000 → ₹20,000 |
| Expansion MRR | Upsells, plan upgrades, add-ons | 5 customers upgraded by ₹1,000 → ₹5,000 |
| Churned MRR | Revenue lost from cancellations | 3 customers canceled ₹2,000 plans → ₹6,000 loss |
| Contraction MRR | Downgrades to smaller plans | 4 customers moved to ₹1,500 plans (from ₹2,000) → ₹2,000 loss |
➕ Net New MRR Formula:
Net New MRR = New MRR + Expansion MRR – Churned MRR – Contraction MRR
Using the examples above:
Net MRR = ₹20,000 + ₹5,000 – ₹6,000 – ₹2,000 = ₹17,000
The above example shows that this month, you grew your MRR by ₹17,000.
Common Mistakes to Avoid
- Including One-Time Payments – MRR should reflect only recurring revenue, not services or hardware sales.
- Using Annual Revenue Divided by 12 – This gives ARR/12, not true MRR. Use actual monthly contract values.
- Ignoring Discounts or Coupons – Always use the actual amount billed monthly, after deducting discounts.
- Mixing Contract Types – Keep monthly and annual plans separate, and normalise annual contracts to monthly values for consistency since a lot of times annual plans are cheaper.
- Not Updating MRR for Upgrades or Downgrades – Adjust your MRR in real-time when customer plans change.
Pro Tips
- Track MRR by cohort – Know which month or customer segment drives growth.
- Monitor MRR growth rate – MoM growth shows momentum and PMF.
- Invest in Expansion MRR – Upsells are often more cost-effective than new sales.
- Pair MRR with Churn – High MRR means little if you’re bleeding customers.
Bottom Line
MRR is more than a number — it’s a lens into your startup’s sustainability, scalability, and overall health.
Founders should know their MRR at all times and understand what’s driving it. Whether you’re raising funding, hiring, or planning a product roadmap, MRR is your guiding compass.