What is MRR and Why Does it Matter?
Monthly Recurring Revenue (MRR) is the predictable total revenue generated by a subscription-based business every month. For B2B SaaS startups, MRR is the most critical metric. It normalizes all pricing plans (annual, quarterly, monthly) into a single monthly figure, allowing founders and investors to track growth velocity and revenue health.
The SaaS MRR Growth Formula
To accurately forecast your revenue growth, you must break down your MRR into four core components:
- New MRR: Revenue added from completely new customers acquired during the month.
- Expansion MRR: Additional revenue generated from existing customers who upgrade their plans, buy add-ons, or add more seats.
- Contraction MRR: Revenue lost from existing customers who downgrade their subscription plans.
- Churned MRR: Revenue completely lost due to customers canceling their subscriptions.
Net New MRR = (New MRR + Expansion MRR) – (Contraction MRR + Churned MRR)
What is Net Revenue Retention (NRR)?
Net Revenue Retention (NRR) measures the percentage of recurring revenue retained from existing customers over a specific period, including upgrades, downgrades, and churn.
An NRR above 100% means that your expansion revenue (upgrades) outpaces your churn and contraction. This is the “holy grail” of SaaS, known as negative churn. Investors typically look for NRR benchmarks of 110% to 120% for healthy, scalable enterprise SaaS companies.
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