What Is MRR? The Monthly Recurring Revenue Formula for SaaS Founders

If you run a SaaS business and you’re not tracking MRR, you’re flying blind.

Monthly Recurring Revenue is the single number that tells you whether your business is growing, stalling, or dying. It strips away one-time payments, refunds, and noise to give you the clearest picture of your subscription revenue. It’s the most important SaaS metric for indie founders — and the one most people get wrong.

The MRR Formula: How to Calculate Monthly Recurring Revenue

The basic monthly recurring revenue formula is simple:

MRR = Number of active subscribers x Average revenue per subscriber

But in practice, you need to account for several MRR components:

• New MRR — Revenue from customers who subscribed this month
• Expansion MRR — Existing customers who upgraded
• Contraction MRR — Existing customers who downgraded
• Churned MRR — Revenue lost from cancellations

Your net new MRR is: New + Expansion - Contraction - Churned. This is what a MRR waterfall chart visualizes — and it’s far more useful than a single number.

ARR vs MRR: Which Should You Track?

Annual Recurring Revenue (ARR) is simply MRR x 12. So if your MRR is $5,000, your ARR is $60,000.

When to use MRR: If you’re under $1M ARR, MRR is more useful. It’s granular enough to spot month-over-month changes in churn, expansion, and new revenue. Most indie SaaS founders and bootstrapped teams should focus here.

When to use ARR: Once you’re raising funding or reporting to a board, ARR becomes the standard. Investors think in annual terms.

For most indie hackers and early-stage SaaS, track MRR weekly and let ARR be a derived number.

Why MRR Matters More Than Total Revenue

Total revenue can be misleading. If you sell a $500 lifetime deal, your revenue spikes — but your recurring revenue didn’t change at all. Next month, that spike disappears and you’re back to baseline.

MRR tells you what you can count on every month. It’s what investors look at, what determines your valuation, and what tells you if you have a real business or a series of one-time sales.

Common MRR Calculation Mistakes

1. Including one-time payments. Setup fees, consulting hours, and lifetime deals are not MRR. Keep them separate.

2. Not tracking MRR movements. Knowing your total MRR is good. Knowing how much came from new customers vs. expansion vs. churn is 10x more useful. A SaaS metrics dashboard that breaks down MRR movements saves you from this blind spot.

3. Ignoring contraction. If 5 customers downgraded from your $99 plan to your $29 plan, that’s $350/mo in contraction MRR. It doesn’t show up in your churn rate but it’s eating your growth.

4. Miscounting annual subscriptions. If someone pays $588/year, their MRR contribution is $49/month — not $588 in the month they paid. This is the most common MRR formula mistake.

What Good MRR Growth Looks Like

For early-stage SaaS (under $10K MRR), 15-20% month-over-month growth is strong. As you scale, that rate naturally slows — 5-10% monthly growth at $50K+ MRR is excellent.

The number that matters most isn’t your growth rate in isolation — it’s your growth rate relative to your churn rate. If you’re growing 10% but churning 8%, your real growth is only 2%. This is why tracking your SaaS churn rate alongside MRR is critical.

How to Track MRR Automatically

You can calculate MRR in a spreadsheet or export data from the Stripe dashboard, but it gets tedious fast — especially once you need to track MRR movements, churn rate, and customer health.

RevPane connects to Stripe and automatically tracks your MRR, MRR movements, churn rate, and growth rate. It’s a SaaS metrics dashboard built for indie founders — not enterprise teams. From $19/mo.

Try RevPane free — connect your Stripe revenue dashboard in minutes.