What is monthly recurring revenue (MRR)?
Quick answer
Monthly recurring revenue (MRR) is the predictable income a business expects to earn every month from active subscriptions or retainers. It is calculated by adding up the normalized monthly amount each paying customer is billed, and it leaves out one-time charges such as setup fees or project work.
Last updated
Updated · By Robert Breen
Why it matters for a small business
For any business that sells by the month, MRR is the clearest picture of where you stand. It tells you roughly what next month's revenue looks like before the month begins, which makes hiring, budgeting and a cash flow forecast far less of a guess. Watching how it changes is just as useful: new customers add to it, upsells grow it, and churn takes it away.
The common mistakes are counting money that isn't recurring and counting it at the wrong size. A one-time setup fee is not MRR. An annual plan paid up front counts as one twelfth per month, not the full amount in the month it arrived. Free trials add nothing until the customer starts paying. MRR is a management number, not an accounting one, so your accountant decides how that prepaid annual amount is recorded in your books, often as deferred revenue.
In a real lesson: Build a Custom GPT That Writes Sales Follow-Up Emails
Stepthrough has no lesson that tracks MRR. The Custom GPT for Sales Follow-Ups lesson does sell a subscription product, though. Northwind Scheduling Software, a made-up company, writes its terms into the GPT's instructions: "Every plan starts with a 14-day free trial. No setup fee. Cancel anytime." Its sales playbook covers three plans.
Each of those lines maps to MRR. The free trial adds nothing until the customer pays. No setup fee means there is no one-time charge to count by mistake. Cancel anytime means any customer's monthly amount can leave, which is why churn sits right next to MRR on most dashboards.
The GPT's job is writing follow-up emails, and its rule "Only mention features and prices from the Sales Playbook" keeps them honest. In the AI Deal Follow-Up Agent lesson, one of Northwind's open deals has a "trial ends Friday." That follow-up is the moment a trial either becomes MRR or doesn't.
Try this lesson free or read the step-by-step guide.
Common confusions
MRR vs revenue
Revenue includes everything you earned, one-time and recurring. MRR counts only the repeating monthly part, so it is usually smaller and much steadier from month to month.
MRR vs ARR
Annual recurring revenue (ARR) is the yearly version, often MRR times 12. Businesses with mostly annual contracts tend to report ARR, while month-to-month businesses usually watch MRR.
Tips
- Leave setup fees, one-time projects and refunds out of MRR.
- Divide annual plans by 12 so one big payment doesn't spike a single month.
- Track new, expansion and lost MRR separately to see what is driving the change.
- Let your billing tool calculate MRR, and ask AI to explain the trend in plain words.
Related terms
More Business terms
Where you use it: free lessons
- Build an n8n AI Agent That Writes Deal Follow-Ups (n8n, 12 min)
Frequently asked questions
- How do you calculate MRR?
- Add up what every active customer pays per month. A made-up example: 40 customers on a $50 plan and 10 customers on a $120 plan give 40 times 50 plus 10 times 120, or $2,000 plus $1,200, for an MRR of $3,200.
- Is MRR the same as cash received?
- No. MRR measures recurring subscription value. Cash can arrive earlier, as with an annual plan paid up front, or later, when a customer pays late. Your books and a cash flow forecast track the cash itself.
- Do free trials count toward MRR?
- No. A trial customer isn't paying yet, so they add nothing. When a trial converts to a paid plan, its monthly price is added to MRR as new business from that month on.