Monthly Recurring Revenue is the predictable revenue stream a SaaS business expects each month from active subscriptions. MRR normalizes all subscription values to a monthly amount, excluding one-time fees, usage overages, and professional services. Key MRR components include New MRR (from new customers), Expansion MRR (from upgrades), Contraction MRR (from downgrades), and Churned MRR (from cancellations). Net New MRR is calculated by adding new and expansion MRR, then subtracting contraction and churned MRR. Tracking MRR movement helps product managers understand which customer actions drive revenue growth and where product improvements are needed.

Why It Matters: MRR provides a real-time pulse on business health and growth trajectory. Unlike revenue recognition accounting, MRR immediately reflects subscription changes, enabling faster decision-making. Product managers monitor MRR trends to evaluate feature launches, pricing changes, and retention initiatives, making it essential for agile strategy adjustment.

ARR (Annual Recurring Revenue): MRR multiplied by twelve for annual view

Net New MRR: The combined effect of all MRR movements in a period

MRR Growth Rate: Percentage increase in MRR month-over-month

Example: A SaaS product has $100K MRR. They add $15K from new customers, $5K from upgrades, lose $3K to downgrades and $7K to churn. Net New MRR is $10K, bringing total MRR to $110K, a 10% growth rate.

Monthly Recurring Revenue (MRR)

Understand Monthly Recurring Revenue (MRR) and its components. Learn to calculate, track, and optimize MRR for SaaS business growth and product decisions.

MRR (Monthly Recurring Revenue): Track & Grow SaaS Revenue

Definition: Annual Recurring Revenue represents the predictable and recurring revenue components of a SaaS business normalized to a one-year period. It includes subscriptions and contracted recurring revenue but excludes one-time fees, professional services, and variable usage charges. ARR is calculated by multiplying Monthly Recurring Revenue (MRR) by 12 or by summing all annual contract values. This metric provides insight into business health, growth trajectory, and valuation potential, making it essential for financial planning, investor communications, and strategic decision-making.

Why It Matters: ARR serves as the primary health metric for SaaS businesses, directly influencing company valuation, investment decisions, and strategic planning. It enables product managers to understand the financial impact of product decisions, prioritize features that drive retention and expansion, and align product roadmaps with revenue goals.

Related Terms: MRR (Monthly Recurring Revenue), Net Revenue Retention, Customer Lifetime Value

Example: A SaaS company with 100 customers paying $500/month has an ARR of $600,000 ($500 × 100 × 12), which helps them forecast growth and secure Series A funding.

Annual Recurring Revenue (ARR)

Learn how Annual Recurring Revenue (ARR) drives SaaS business decisions. Complete guide with calculations, examples, and why it matters for product managers.

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