How do you calculate MRR with annual plans?

Divide the annual price by twelve and count that amount in every month of the contract. A customer paying $990 a year adds $82.50 to MRR each month, not $990 in the month they paid. Do the same with quarterly plans by dividing by three. This keeps MRR smooth and comparable however customers choose to be billed.

Net new MRR is the month's total change in recurring revenue: new MRR plus expansion and reactivation, minus contraction and churned MRR. It equals ending MRR minus starting MRR. It is the single best summary of growth, but always read it alongside its parts, because the same figure can hide very different levels of churn.

What is the difference between churned MRR and contraction MRR?

Churned MRR is recurring revenue lost from customers who cancel completely. Contraction MRR is revenue lost from customers who stay but pay less, for example by downgrading or removing seats. Both reduce MRR, and adding them together gives gross MRR churn. Tracking them separately matters because they have different causes and different fixes.

Does MRR include taxes or discounts?

MRR should exclude taxes, because tax collected is owed to the government rather than earned. Recurring discounts are normally subtracted so MRR reflects what customers actually pay. Temporary or one-time discounts are a judgment call, and tools such as Stripe let you choose. Pick one rule, document it, and apply it consistently every month.

Is MRR the same as monthly revenue?

No. Monthly revenue is what your accounts recognize as earned in a month, including one-off fees, services and usage. MRR counts only recurring subscription value, normalized to a month. A month with a large consulting project can show high revenue and flat MRR. MRR is the better guide to the repeatable part of the business.

When should a failed payment count as churned MRR?

Set a clear cut-off and stick to it. Many businesses keep a past-due subscription in MRR while payment retries run, then treat it as churned once the subscription is cancelled or marked unpaid. Stripe follows that approach by default. If the customer later pays and returns, record the revenue as reactivation MRR rather than new MRR.

What Is MRR? Monthly Recurring Revenue and Its 5 Movements

MRR (monthly recurring revenue) is the subscription revenue a business earns in a normal month from active paying customers, excluding one-off fees and taxes. The formula is MRR = the sum of every active subscription's monthly value, with quarterly and annual plans divided down to one month. Its monthly movements show where growth comes from.

The single MRR figure matters less than how it moves. Two companies with identical MRR can be heading in opposite directions, and only the breakdown into new, expansion, contraction and churned MRR tells you which one you are.

How to calculate MRR

Convert every active subscription to a monthly amount, then add them up. A monthly plan counts at its price, a quarterly plan at a third of its price, and an annual plan at a twelfth. Net off recurring discounts and leave out taxes, setup fees and services.

Plan	Customer pays	Counts toward MRR
Monthly	$99 a month	$99
Quarterly	$270 a quarter	$90
Annual	$990 a year	$82.50

The annual customer paid $990 in one go, but they contribute $82.50 to MRR in every month of the year. Stripe's billing analytics documentation gives the same treatment with a fuller example: 100 subscribers at $100 a month plus 50 at $600 a year comes to $12,500 of MRR.

MRR is the operating view of the same contracts that ARR describes over a year. For the annual figure, multi-year contracts and why investors quote it, see our guide to what ARR is.

The five MRR movements

Every change in MRR from one month to the next falls into one of five buckets. Tracking them separately is the whole point of the metric.

New MRR: recurring revenue from customers who started paying this month.
Expansion MRR: extra recurring revenue from existing customers who upgraded, added seats or bought add-ons.
Reactivation MRR: revenue from former customers who came back onto a paid plan.
Contraction MRR: recurring revenue lost when existing customers downgraded or removed seats.
Churned MRR: recurring revenue lost from customers who cancelled entirely.

The bridge from one month to the next is then simple: ending MRR = starting MRR + new + expansion + reactivation − contraction − churned. Net new MRR is everything after the starting figure, the month's actual change.

Some teams fold reactivation into new MRR. Keep it separate if you can, because a win-back from your email marketing and a customer who has never heard of you need different acquisition maths.

A worked month

Take a software company that starts the month on $20,000 of MRR, with plans at $99 and $249 a month.

Movement	What happened	MRR change
Starting MRR		$20,000
New	12 customers joined at $99	+$1,188
Expansion	8 customers upgraded from $99 to $249	+$1,200
Reactivation	2 former customers returned at $99	+$198
Contraction	3 customers downgraded from $249 to $99	−$450
Churned	4 cancelled at $99, 1 at $249	−$645
Ending MRR		$21,491

Net new MRR is $1,491, which is 7.46 percent growth on the starting figure. Gross MRR churn, contraction plus churned divided by starting MRR, is $1,095 out of $20,000, or 5.5 percent.

One month of MRR movement, from 20,000 to 21,491

Expansion did as much work as new customers here, which is typical of a healthy pricing ladder. If upgrades are rare, look first at how your tiers are built, which our post on pricing an AI SaaS covers.

Same net new MRR, very different businesses

Net new MRR hides as much as it shows. Consider two companies, both starting on $20,000 and both adding $1,000 of net new MRR in a month.

	Company A	Company B
New + expansion	+$1,800	+$4,000
Contraction + churned	−$800	−$3,000
Net new MRR	+$1,000	+$1,000
Gross MRR churn	4 percent	15 percent
Added ÷ lost	2.25	1.33

Company B has to win $4 of new revenue to keep $1. Its sales team is working hard to refill a leaking bucket, and the moment acquisition slows, MRR falls. Company A grows more slowly on the top line but keeps what it wins.

Same net change, very different churn

The ratio in the last row, MRR added divided by MRR lost, is a quick health check. Above 1 means you are growing; the further above, the less your growth depends on constant new sales. If retention is the problem, a light CRM that flags at-risk accounts is often worth more than another acquisition channel.

MRR vs ARR vs revenue vs bookings

MRR is a monthly snapshot of recurring contracts. The other numbers measure different things, and confusing them is how founders end up with an MRR figure that jumps every January.

Metric	Measures	Moves when
MRR	Monthly value of live recurring subscriptions	Customers join, upgrade, downgrade or leave
ARR	MRR × 12, the annual view	Same as MRR
Revenue	What accounting recognizes as earned in the month	Service is delivered, including one-off work
Bookings	Value of contracts signed in the month	A deal is signed, whatever its length
Cash	Money received in the month	Invoices are paid, often in advance

An annual customer shows up as a big bookings and cash month, then a steady $82.50 of MRR. Keep the two views separate and both stay honest.

What to decide about trials, discounts and failed payments

MRR has no accounting standard behind it, so every business makes a handful of definitional choices. The defaults in Stripe Billing are a reasonable starting point to compare against.

Stripe counts active and past-due subscriptions, excludes free plans, trials, taxes and metered usage, and treats a subscription as churned once it is cancelled or marked unpaid. It also lets you choose whether recurring and one-time discounts are subtracted, a detail spelled out in its MRR and ARR support note.

You do not have to copy those rules. You do have to pick yours, write them down and never change them quietly, or your month-on-month comparison stops meaning anything.

Common MRR mistakes

Booking the annual payment in one month. A $990 annual plan is $82.50 of MRR, not a $990 spike in the month it was paid. Spikes like that make growth look lumpy and churn look sudden.

Including one-off fees. Setup fees, onboarding and consulting do not recur, so they belong in revenue, not MRR. Leave them in and next month looks like contraction when nothing changed.

Counting trials and freemium users. Nobody in a free trial has agreed to pay. Count them the month they convert, at the price they actually pay.

Ignoring failed payments for too long. A card that has failed for weeks is a customer leaving quietly. Decide when an unpaid subscription becomes churned MRR, and apply it every month.

Treating usage spikes as recurring. A one-off surge in metered usage is real revenue but not recurring revenue. Keep committed minimums in MRR and report variable usage on its own line.

Tools that track MRR

A spreadsheet is fine while you have a few dozen customers and one billing system. Past that point, a subscription analytics tool calculates the five movements automatically from your billing data.

Stripe Billing reports MRR and its movements if you already bill through Stripe. ChartMogul and Baremetrics sit on top of billing systems and add cohort and retention views. Whichever you pick, check its definition against the rules you wrote down before you trust the chart.