How to calculate monthly recurring revenue, step by step
Monthly recurring revenue is one number that answers one question: what do your paying customers pay you every month? The calculation needs four numbers: your paying customers, your average revenue per user per month, your monthly churn rate and your new customers a month. On 500 paying customers at $49.00 a month, with a 3% monthly churn rate and 25 new customers a month, the monthly recurring revenue is $24,500, the annual recurring revenue is $294,000 and the net new MRR is $490 a month — a growth rate of 2% a month, not a value in dollars, and it is below 100% because the business keeps only a small share of its revenue as new revenue each month.
The definition is the revenue that repeats every month: the customers who pay you, times what each one pays on average. The paying customers are the customers who actually pay — not the free users, not the trial users, not the customers who cancelled. The average revenue per user, or ARPU, is the total monthly revenue divided by the paying customers — if the customers pay different prices, the ARPU is the average, not the price of any one plan. So the monthly recurring revenue is the paying customers times the ARPU.
The worked example, line by line. Step 1 — the monthly recurring revenue: 500 × $49.00 = $24,500. Step 2 — the annual recurring revenue: $24,500 × 12 = $294,000. Step 3 — the churned customers: 500 × 3 ÷ 100 = 15. Step 4 — the churned MRR: 15 × $49.00 = $735. Step 5 — the new MRR: 25 × $49.00 = $1,225. Step 6 — the net new MRR: $1,225 − $735 = $490. Step 7 — the net MRR growth: $490 ÷ $24,500 × 100 = 2%. Step 8 — the MRR in 12 months, linear: $24,500 + $490 × 12 = $30,380. Work it yourself in the monthly recurring revenue calculator.
A note on the rounding: the figures are displayed to two decimals, half-up. The growth is the net new MRR divided by the MRR, and with whole-dollar inputs it lands exactly on 2.00%. With fractional inputs it can land a hair either side of a round number, and the calculator prints the unrounded growth so the rounding does not mislead you.
What the answer means
A net MRR growth of 2% means the business gains $490 of new monthly revenue every month, after the customers who leave — for every dollar of MRR, it gains about 2 cents of new MRR. That $490 has to cover everything the business spends to grow: marketing, sales, product work and support, and whatever is left is the growth that compounds. A growth rate above 2% a month is steady for many subscription businesses, and 5% a month or more is fast, but the right growth depends on the business — a consumer app with a low price grows differently from an enterprise SaaS with a high price. Compare your growth against businesses like yours, not against a universal number, and watch it over time: a growth rate that drifts down while the MRR rises usually means churn is climbing faster than new customers.
When there is no growth rate
Some businesses have no growth rate, and the honest answer is that it is undefined. With no paying customers there is nothing to grow against — the MRR is nothing, so there is no denominator — and the calculator says so plainly. A business that earns nothing has no growth rate to report, whatever its new customers are worth. The same holds when the ARPU is nothing: with no price there is no revenue, and there is nothing to grow against. In each case the calculator shows the figure instead of hiding it.
MRR vs ARR
The monthly recurring revenue and the annual recurring revenue answer different questions, and mixing them up is the most common mistake. The MRR is what the business earns each month — $24,500 here. The ARR is what it would earn in a year at the same run rate — $294,000 here. One is a month, the other is a year. A business can have a big ARR and a thin monthly growth if it is large and slow, or a small ARR and a fast monthly growth if it is small and quick. Use the MRR when you want the monthly run rate, and use the ARR when you want the yearly run rate. Work it out in the monthly recurring revenue calculator.
MRR vs net new MRR
The monthly recurring revenue and the net new MRR answer different questions too. The MRR is the total — $24,500 here. The net new MRR is the change — $490 a month here. One is the size of the business, the other is how fast it grows. A business can have a big MRR and a negative net new MRR if churn beats new customers, or a small MRR and a big net new MRR if it is growing fast from a small base. Use the MRR when you want the size, and use the net new MRR when you want the direction. Work it out in the monthly recurring revenue calculator.
Common mistakes
The first mistake is counting free users as paying customers — only the customers who actually pay count toward the MRR, so count the payers, not the sign-ups. The second is using the price of one plan as the ARPU — the ARPU is the total monthly revenue divided by the paying customers, so work it out from the revenue, not from the price list. The third is forgetting churn — the MRR alone does not tell you whether the business grows, so always work out the net new MRR alongside it. The fourth is counting one-off sales as recurring revenue — setup fees and single purchases are not MRR, and counting them inflates the run rate. Work it out in the monthly recurring revenue calculator, and check the churn rate calculator and the customer acquisition cost calculator before you decide what the answer means.