The formula, step by step
Start with the simple version: MRR equals paying customers times average revenue per user (ARPU). If you have 200 customers averaging $30 a month, that is $6,000 MRR. Multiply by 12 for annual run rate (ARR): $72,000.
The average hides real differences between plans. A more accurate method sums the actual monthly value of every active subscription: a $9 starter customer and a $49 pro customer are not two average customers, they are $58 of MRR together. Once you have more than a couple of pricing tiers, this per-subscription sum is worth the extra five minutes.
Common mistakes that inflate MRR
- Counting one-time payments or setup fees as recurring revenue
- Including trial users who have not converted to paying yet
- Averaging in annual plans without dividing by 12
- Forgetting to remove churned customers from the current month's count
Each of these makes MRR look healthier than it is, which then makes every downstream decision (hiring, spend, valuation) wrong in the same direction. When in doubt, undercount rather than overcount.
Breaking MRR into its moving parts
Total MRR can stay flat while the business is quietly changing shape underneath. Track three components separately: New MRR (from customers who joined this month), Expansion MRR (upgrades and add-ons from existing customers), and Churned MRR (revenue lost to cancellations and downgrades). Net new MRR is New plus Expansion minus Churned, and it is the honest measure of whether growth is real.
Frequently asked questions
What is a good MRR for a solo-founder SaaS?
There is no universal number since it depends heavily on price point, but many solo founders consider $5,000 to $20,000 MRR a strong milestone. What matters more than the absolute number is whether net new MRR stays positive month over month.
Does MRR include annual subscriptions?
Yes, normalized to a monthly amount. A $1,200 annual plan contributes $100 to MRR, not $1,200 in the month it was paid.
How is MRR different from cash in the bank?
MRR is a recurring revenue measure, not a cash balance. A customer paying annually gives you cash up front but only $100 a month of MRR if their plan is $1,200 a year. Track both separately.
Can I calculate MRR for free?
Yes. Our free MRR calculator runs entirely in your browser, with no signup, and breaks out new, expansion, and churned MRR alongside your total.
Related
Skip the manual digging
IdeaFast scans Reddit for you and scores real pain points with evidence. Run your first scan free.