What is the MRR (monthly recurring revenue) for software?

This article was written by our expert who is surveying the industry and constantly updating the business plan for a software company.

Who wrote this content?

The Dojo Business Team

A team of financial experts, consultants, and writers

We're a team of finance experts, consultants, market analysts, and specialized writers dedicated to helping new software entrepreneurs launch and scale SaaS businesses. We help you avoid costly mistakes by providing detailed business plans, accurate market studies, and reliable financial forecasts to maximize your chances of success from day one—especially in the software market.

What does Monthly Recurring Revenue (MRR) mean for this software?

MRR is the predictable subscription revenue your software earns every month from active, paying customers.

It excludes implementation fees, one-off services, and usage overages so you see the true recurring base that funds growth. In a software business, keep your MRR definition strict to avoid double counting trials, paused accounts, or outstanding invoices.

Calculate MRR by summing monthly prices across all active subscriptions, or by multiplying active paying accounts by ARPA/ARPU. If you sell annual plans, convert to a monthly equivalent (e.g., $1,200/year → $100 MRR) and count only if the account is active.

Document these rules in your revenue policy so finance, sales, and product teams report the same number. We cover this exact topic in the software business plan.

You’ll find detailed market insights in our software business plan, updated every quarter.

What is the current total MRR?

Total MRR is the sum of all monthly subscription charges due from active customers at month-end.

For a new software business, publish this figure in your founder update every month and track month-over-month (MoM) growth. Use the same cutoff (e.g., last calendar day at 23:59) to keep periods comparable.

Illustration for a software product with three plans: 500 Basic × $29 + 300 Pro × $79 + 50 Enterprise × $499 = $40,950 MRR. State if net of credits or taxes depending on your policy.

Automate this in your billing or analytics tool and lock the number on close to avoid restatements. This is one of the strategies explained in our software business plan.

Be explicit when you include or exclude usage or overage fees; most early-stage software companies exclude them from MRR.

How many active paying customers contribute to MRR?

Active paying customers are accounts with a valid, non-delinquent subscription generating monthly revenue.

Exclude free trials, internal/test tenants, and suspended or delinquent accounts until payment is cleared. Count multi-workspace customers as one account unless your financial model treats each workspace as a separate contract.

Publish both “total users” and “active paying accounts” to prevent confusion in software board updates. If you sell per-seat, also track paid seats so seat expansion is visible.

Maintain a clear status map: trial → active → delinquent → canceled; align it across billing, CRM, and data warehouse.

Get expert guidance and actionable steps inside our software business plan.

What is the average revenue per account (ARPA) or per user (ARPU) each month?

ARPA/ARPU tells you how much monthly revenue your software earns per paying account or per paid user.

Compute ARPA = MRR ÷ Active Paying Accounts; compute ARPU if you price per seat. Rising ARPA usually means good packaging, effective expansion, or better plan mix.

Example: $40,950 MRR ÷ 840 accounts = $48.75 ARPA; if 2,100 paid seats, ARPU = $40,950 ÷ 2,100 = $19.50.

Track ARPA by segment (SMB, mid-market, enterprise) to see where your software monetizes best.

It’s a key part of what we outline in the software business plan.

How much of MRR comes from new customers versus existing customers?

Split MRR into New, Expansion, and Renewal/base to see growth drivers in your software revenue.

New MRR comes from first-time conversions; Expansion MRR comes from upgrades, seat adds, and add-ons; Renewal/base is the recurring amount that continues from existing customers. This view makes marketing and product ROI visible.

Target early-stage mix where at least 30–50% of MRR growth is Expansion as product-market fit deepens. If New dominates but churn is high, revisit onboarding and support.

Report these as absolute dollars and as a percentage of total MRR for clarity.

We cover this exact topic in the software business plan.

What is the monthly churn rate (customers and revenue)?

Monthly churn shows how much your software is losing each month—by customer count and by dollars.

Customer churn % = customers lost ÷ start-of-month customers; Revenue churn % = MRR lost from churn/downgrades ÷ start-of-month MRR. Also track Net Revenue Churn after accounting for expansions.

A healthy SMB-focused software often targets customer churn below ~3% monthly and Gross Revenue Churn below ~4–5% monthly (your benchmarks may vary by segment and price point).

Publish churn with reasons (poor fit, price, missing features) so product and CS can act.

This is one of the many elements we break down in the software business plan.

How much MRR is added each month from upgrades, cross-sells, or expansions?

• Expansion MRR includes plan upgrades (e.g., Basic → Pro), seat increases, add-ons, and usage tier bumps that are marked recurring.
• Track it by driver so product packaging wins are visible (new feature bundles vs seat growth).
• Set a monthly target (e.g., Expansion MRR ≥ 2.0% of starting MRR) to push net retention above 100%.
• Attribute expansions to customer segments to find your most expandable cohorts.
• Use cohort charts to ensure expansions are not masking high early churn.

How much MRR is lost each month from downgrades or cancellations?

• Downgrade MRR is the recurring dollar drop when customers move to smaller plans or remove seats/add-ons.
• Cancellation MRR is the recurring dollar amount lost when accounts terminate.
• Report Gross Revenue Churn = Downgrade + Cancellation; report Net Revenue Churn after subtracting Expansion.
• Tag reasons (price, feature gap, product adoption) to drive roadmap and CS playbooks.
• Design save offers and time-boxed discounts so you stabilize MRR without eroding ARPA permanently.

What is the MRR breakdown by subscription tier or pricing plan?

Show MRR by plan so your software team sees which tiers drive revenue and where to optimize packaging.

Present both dollars and share of total MRR; include paid seats if you sell per-user. Update after pricing changes to confirm the impact.

What share of MRR comes from discounts, promotions, or non-standard pricing?

Track discounted and custom-priced subscriptions separately so your software’s true ARPA and margin are clear.

Compute Discounted MRR % = MRR under discount ÷ Total MRR; also track how long each discount lasts and its original list price to plan upsell and renewal.

Example: $3,200 discounted ÷ $40,950 total = 7.8%; set a policy (e.g., keep discounted share ≤10%) and a reversion plan at renewal.

Report discount cohorts (by start month) to ensure they convert back to list price on schedule.

This is one of the strategies explained in our software business plan.

What is the MRR trend over the last 6 to 12 months?

Trend your software’s MRR monthly to spot seasonality, packaging wins, and retention shifts.

Show dollars, MoM growth %, and a rolling 3-month average. Annotate pricing changes, launches, and campaigns for context.

How is MRR projected to grow in the coming months based on pipeline and retention?

Combine pipeline coverage, expected win rates, and retention to forecast your software’s next-quarter MRR.

Use conservative, base, and upside scenarios and include separate lines for New, Expansion, Downgrade, and Cancellation MRR. Reconcile forecasts monthly against actuals to improve accuracy.

Which expansion motions add the most MRR each month?

Prioritize expansion motions that reliably scale in a software business.

Focus on plan upgrades tied to value (features, limits), seat expansion from active teams, and add-ons with clear ROI. Align CS playbooks to these motions and measure attach rates.

Bundle high-value features into Pro/Enterprise to increase ARPA without harming activation. Use in-product nudges at usage thresholds.

Align pricing pages, CRM, and billing to one taxonomy so tracking is clean. You’ll find detailed market insights in our software business plan, updated every quarter.

Review expansion cohorts monthly and cut experiments that do not move net retention.

What are the main drivers of churn in a software business and how should I track them?

Churn in software is driven by poor fit, low adoption, missing features, price, and service quality.

Instrument cancellation reasons, product usage drop-offs, and time-to-value so you can act quickly. Track design-level metrics like activation rate and weekly active seats.

Set early-warning health scores and outreach playbooks in CS to save at-risk accounts. Tie save offers to product education, not permanent discounts.

Publish a monthly churn memo by segment with clear owner actions. This is one of the strategies explained in our software business plan.

Re-forecast cohorts after major product or pricing changes to verify retention gains.

Which KPIs should I watch alongside MRR?

MRR alone is not enough; your software business should pair it with retention and efficiency metrics.

Track Net Dollar Retention (NDR), Gross Revenue Churn, Customer Churn, ARPA, CAC Payback, Magic Number, and Pipeline Coverage. These reveal sustainability, not just growth.

Set monthly targets and owner teams for each KPI and review in your operating cadence. Keep definitions in a shared metrics dictionary.

Tie incentives to NDR and payback to keep acquisition and retention balanced. We cover this exact topic in the software business plan.

Refresh benchmarks quarterly as your segment or price points change.

How should I present MRR to investors or stakeholders?

Use a concise monthly package that makes your software’s MRR drivers obvious.

Include: total MRR, New/Expansion/Renewal split, churn (gross and net), ARPA, plan mix, and a 12-month trend with annotations. Add a 90-day forecast with assumptions.

Show charts and a single table that reconciles starting MRR to ending MRR each month (waterfall). Keep a one-page glossary of definitions in the appendix.

Share raw CSVs for diligence and lock the close process to avoid revisions. You’ll find detailed market insights in our software business plan, updated every quarter.

End with key risks, planned experiments, and hiring implications.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.

Sources

1. Stripe — What is Monthly Recurring Revenue (MRR)?
2. Wall Street Prep — Monthly Recurring Revenue (MRR)
3. Baremetrics — SaaS Metrics
4. Zuora — Monthly Recurring Revenue
5. Geckoboard — ARPA
6. Paddle — Monthly Recurring Revenue
7. ChurnZero — MRR
8. Growth Equity Interview Guide — Net Revenue Retention
9. ChurnZero — Churn Rate
10. Younium — SaaS Churn Rate