What It Means (Simple Explanation)
MRR is the total predictable revenue you earn every month from subscriptions. It’s steady, trackable, and a core health metric for any SaaS business.
Example
If you have 50 customers paying $200 each per month, your MRR is $10,000.
Why This Matters (To SaaS & Finance Teams)
This is the number SaaS teams live and die by. MRR tells you how much recurring revenue you are generating every month—and whether that’s trending up, down, or flat. Ordway tracks MRR in real time by syncing your contracts, billing, and revenue schedules. It connects subscription changes (like upgrades or cancellations) to report accurate MRR.
How It Works (Break It Down Simply)
MRR = Sum of all monthly subscription charges (net of discounts, credits, and trials) It includes: – New MRR (new customers) – Expansion MRR (upgrades) – Contraction MRR (downgrades) – Churned MRR (cancellations) Track each of these separately to spot what’s helping—or hurting—your growth.
Common Headaches
- Confusion between invoiced revenue and MRR
- Manual tracking in spreadsheets = errors
- Delays in including upgrades, downgrades, churn in MRR reporting
Ordway automatically syncs and updates MRR when customers upgrade, downgrade, or leave.
Best Practices
- Break down MRR into segments (e.g., by product, customer size, or plan)
- Update MRR in real time, not just end-of-month
- Tie MRR to company KPIs
- Don’t include one-time charges or setup fees
- Use clean contract and billing data
When to Track MRR
All the time. Use it in weekly dashboards, monthly board reports, and every time you plan headcount, runway, or growth targets.
KPI Impact / What It Affects
MRR is used as input to calculate various other SaaS metrics including net retention rate, gross retention rate, churn rate.. It’s one of the most widely reported metrics.
Insights from SaaS Revenue Ops
Ordway’s ARR Guide breaks down how to calculateMRR/ARR for various different product lines, contract types, and distribution channels.
FAQ Section (Quick Answers to Real Questions)
How do you calculate Net MRR and Expansion MRR accurately for SaaS?
Accurately calculating Net MRR involves starting MRR, then adding Expansion MRR and subtracting Contraction MRR and Churn MRR. Expansion MRR specifically measures additional revenue from existing customers through upsells, cross-sells, or increased usage. For precision, a sophisticated subscription management platform can automate the tracking of all these components, ensuring real-time, granular insights into revenue growth.
What are the best practices for reducing SaaS churn MRR and improving retention?
To reduce churn MRR, focus on proactive customer success, ensuring continuous value delivery and promptly addressing customer issues. Improving retention involves deeply understanding customer usage patterns and feedback, often enabled by comprehensive reporting from a modern billing system. Offering flexible billing options and personalized engagement strategies based on data also significantly contributes to long-term customer loyalty.
What is the difference between MRR, ARR, Bookings, and Recognized Revenue?
MRR (Monthly Recurring Revenue) represents predictable monthly income, while ARR (Annual Recurring Revenue) is its yearly equivalent. Bookings refer to the total value of new contracts signed, reflecting future revenue potential rather than immediate income. Recognized Revenue, however, is the portion of Bookings earned and recorded on the financial statements in accordance with accounting principles like ASC 606 over the service period.
What are the essential features of subscription billing and revenue recognition software?
Essential features include automated invoice generation with support for diverse pricing models like usage-based, tiered, and hybrid subscriptions. For revenue recognition, the software must automate ASC 606 and IFRS 15 compliance, including contract modification handling, performance obligation tracking, and deferral schedules. A robust solution provides real-time analytics and integration with existing financial systems for end-to-end efficiency.
How can you automate ASC 606 and IFRS 15 revenue recognition for SaaS?
Automating ASC 606 and IFRS 15 revenue recognition for SaaS involves using specialized software to identify performance obligations, allocate transaction prices, and recognize revenue systematically over the service period. This automation streamlines the complex accounting process, reduces manual errors, and ensures compliance with global standards, even for intricate subscription and usage-based models. A modern platform provides real-time deferral schedules and audit trails for complete transparency.
What are some strategies to increase monthly recurring revenue (MRR) for subscription businesses?
To increase MRR, subscription businesses should focus on several key strategies, including optimizing pricing tiers to better capture value and expanding upsell and cross-sell opportunities for existing customers. Reducing churn through exceptional customer success and targeted engagement also significantly contributes to MRR growth. Leveraging data to identify new market segments and improve customer acquisition efficiency further enhances overall recurring revenue.
How can complex usage-based billing and subscription models be managed effectively?
Effectively managing complex usage-based billing and subscription models requires a highly flexible and automated billing system. Such a system can accurately track multiple usage metrics, apply intricate pricing logic—including tiers, thresholds, and custom prorations—and automatically generate precise invoices. This ensures accurate revenue capture, reduces billing errors, and provides the agility needed to support evolving business models without manual overhead.
Want to Go Deeper?
Let Ordway help you track MRR with clean, real-time subscription data. Request a demo or explore the Subscription Billing Guide.
Other Glossary Terms
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Credit Memo vs Debit Memo
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