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Monthly Recurring Revenue (MRR) is the predictable income your subscriptions generate every month. It counts only the repeating part of your revenue, so one-off orders and setup fees stay out of it. Think of it as the number your store starts each month with before anyone buys anything new. For any business selling subscriptions, it is the single clearest measure of health.
A normal store wakes up on the first of the month at zero. A subscription store wakes up with money already committed. MRR is the size of that head start.
That predictability is why the metric exists. Because you can forecast it, you can plan stock, staffing, and ad spend against it with some confidence.
The basic formula is short. Multiply your active subscribers by your average revenue per subscriber per month.
Say you have 500 subscribers paying an average of $30. Your MRR is $15,000. Nothing more complicated is needed for a single-price plan.
Mixed billing periods are where it gets fiddly. An annual plan at $360 does not add $360 to this month. Instead you divide by twelve and count $30, because MRR normalises everything to a monthly figure.
Here is a mixed book worked through. You have 300 monthly subscribers at $30 and 200 annual subscribers at $360.
Your bank balance that month tells a very different story. The annual cohort may have paid $72,000 upfront in January. MRR deliberately ignores that timing.
A single total hides what is really happening. Four movements explain every change, and tracking them separately is where the insight lives.
Net new MRR is new plus expansion, minus contraction and churn. Two stores can post identical growth while one is quietly bleeding and backfilling. Only the movements reveal that.
Three things get mixed in by mistake. Each one inflates the number and ruins the forecast.
First, it is not cash collected. Annual plans arrive as one lump but count monthly, so cash and MRR move on different rhythms.
Second, one-off charges never belong. Setup fees, shipping, and single product orders are real revenue but not recurring revenue.
Third, trials should not count until they convert. A free trial has committed nothing yet, so including it borrows against a sale you have not made.
Refunds deserve a quick note of their own. A refunded renewal reduces cash but leaves MRR untouched if the subscription continues. Cancel the subscription and the MRR goes with it.
Subscribers leave in two very different ways. Voluntary churn is a decision, while involuntary churn is a failed card payment.
Both cost the same MRR, but only one is a verdict on your product. Recurly’s benchmarks put ecommerce churn at 4.25%, against 3.22% for SaaS. Voluntary cancellations make up roughly two thirds of that ecommerce figure.
So the remaining third is expired cards and declined charges. That portion is recoverable with retry logic and card updater tools. In short, it is the cheapest MRR you will ever win back. Our churn rate entry covers the measurement side in more detail.
The reason is rarely price. Recurly found 52% of consumers cancelled a subscription in the past year because they were not using it.
That reframes the whole problem. Unused product is the churn driver, so the fix is engagement rather than discounting. A subscriber who never opens the box will cancel eventually at any price.
Cancellation is also less final than it feels. The same research found former subscribers drive nearly one in four new sign-ups. Therefore a clean, friendly cancellation flow protects future MRR.
MRR and churn together give you a rough customer lifetime value. Divide your average revenue per subscriber by your monthly churn rate.
A $32 subscriber churning at 5% a month is worth about $640. Cut churn to 4% and the same subscriber is worth $800. Nothing about the price changed.
That is the argument for retention spending in one line. Small churn improvements compound into large lifetime value gains, because the subscriber simply stays longer.
It also sets your acquisition ceiling. If a subscriber is worth $640, paying $400 to acquire them leaves thin margin. So MRR quietly governs how much you can afford to bid on ads.
Imagine a coffee roasting brand called Ridgeline Roasters. They ship a monthly bean subscription in three sizes, priced at $20, $35, and $60. Retail bags are also sold as one-off orders.
Ridgeline begins the month with 800 subscribers at an average of $32. That is $25,600 in MRR. Their one-off bag sales are excluded, even though the cash is welcome.
The owner used to track total revenue only. Consequently a strong month of one-off gift sales masked a weak subscription month, and nobody noticed.
Net new MRR works out at $585. So the closing figure is $26,185, a gain of a little over 2%.
The headline looks like growth, and it is. However, the movements tell a harsher story. Ridgeline spent acquisition budget on 60 new subscribers and lost 45 to cancellation.
They are close to running on a treadmill. Expansion revenue is the quiet hero, because it costs nothing to acquire.
Compare the two levers on cost. The 40 upgrades produced $600 with a single email. The 60 new subscribers cost real advertising money to find.
Ridgeline had been treating upgrades as a nice accident. Once they saw expansion as its own line, it became something to actively engineer.
Two fixes follow directly. Chase the failed payments among those 45 cancellations first, since some never meant to leave. Then work on why the rest left, which is a retention problem rather than a marketing one.
There is a third move worth testing. Recurly reports that annual plans generate 50-60% higher revenue per user. Offering an annual option would smooth Ridgeline’s churn considerably.
Annual Recurring Revenue is the same idea on a yearly scale. Most of the time it is simply MRR multiplied by twelve.
The choice is about billing rhythm, not maths. If most customers pay monthly and can cancel monthly, MRR reflects reality better. Annual contracts make ARR the more honest headline.
For e-commerce subscriptions, MRR usually wins. Consumer subscribers cancel with a click, so a yearly figure implies a commitment that does not exist. Meanwhile B2B and wholesale arrangements often suit ARR, because the contracts genuinely run a year.
Whichever you pick, do not quote both interchangeably. Mixing them is how a forecast ends up twelve times wrong. Our guide on getting more recurring customers covers the wholesale side of this.
Yes, and you should count the discounted amount, not the list price. If a $40 plan sells at $30 with a permanent coupon, that subscriber contributes $30. Temporary introductory discounts are trickier. Most teams count the discounted rate while it applies, then record the step up as expansion MRR when it ends.
No, because a paused subscriber is not being billed this month. Exclude them while paused, then add them back on resumption. It is worth tracking pauses separately though. Recurly found 3 out of 4 subscribers who pause eventually return, so a pause is far better than a cancellation.
There is no universal number, and percentages flatter small bases. A store adding $500 to a $5,000 base grows 10% without much effort. The more useful test is whether expansion MRR exceeds churned MRR. When it does, your existing customers fund growth on their own.
MRR turns a subscription business from a guess into a forecast. The total on its own is not that useful, though. Track the four movements behind it, and you will see whether you are growing or just replacing what you lost.
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