# How to calculate MRR (monthly recurring revenue) properly

> How to calculate MRR for a subscription business, what to leave out, how annual plans and discounts count, and how to split it into new, lost and expansion.

Published 1 October 2026 by The Scenario team. Source: https://use-scenario.com/blog/how-to-calculate-mrr

**Short answer:** MRR is the monthly value of every active subscription today. Add up what each paying customer pays per month, turning annual plans into a monthly figure (divide by 12), and leave out one-off charges, unpaid trials and customers who have already cancelled.

Here's how to calculate MRR, or monthly recurring revenue: add up what every active subscription is worth per month, today. If 40 customers pay £29 a month and 5 pay £290 a year, your MRR is (40 × £29) + (5 × £290 ÷ 12), which is £1,160 + about £121, or roughly **£1,281**. That's it. The hard part isn't the sum, it's deciding what counts.

This guide covers what belongs in MRR, what doesn't, and how to break it down so it tells you why it moved.

## What counts as MRR

MRR is a snapshot of recurring revenue you can expect next month if nothing changes. So it includes:

- **Every active, paying subscription,** at what the customer actually pays after any discount.
- **Annual and quarterly plans, turned into a monthly figure.** A £290 yearly plan is about £24 a month of MRR, not £290 in the month it was paid.
- **Add-ons and extra seats** that bill every period.

It leaves out:

- **One-off charges:** setup fees, consulting, a one-time purchase. They're revenue, but not recurring.
- **Free trials and unpaid accounts.** A trial becomes MRR when the first payment goes through.
- **Customers who have already cancelled,** even if their paid period hasn't ended yet. Many founders count them until the period ends; either is defensible, but pick one rule and keep it.
- **Tax.** VAT you collect belongs to HMRC, not to you.

### Discounts and coupons

Use the price the customer actually pays. If a customer is on £29 a month with a 50% discount for three months, they contribute £14.50 of MRR now and £29 once the discount ends. Counting the full price makes MRR look better than your bank balance will.

## Why MRR moves: the four parts

A single MRR number tells you where you are. Splitting the change into parts tells you why.

| Part | What it is |
|---|---|
| **New MRR** | From customers who started paying this month |
| **Expansion MRR** | Extra from existing customers who upgraded or added seats |
| **Contraction MRR** | Lost from existing customers who downgraded |
| **Churned MRR** | Lost from customers who stopped paying |

**This month's MRR = last month's MRR + new + expansion − contraction − churned**

Say a hypothetical design tool started September at £4,000 of MRR. It gained £600 from new customers and £150 from upgrades, lost £50 to downgrades and £300 to cancellations. September ends at £4,000 + £600 + £150 − £50 − £300 = **£4,400**.

The headline says MRR grew 10%. The parts say more: new sales are doing the work, and cancellations are taking back half of them. That points to where to spend the next month, and it's invisible in the single number.

If cancellations are the big leak, our guide on [how to calculate churn rate](/blog/how-to-calculate-churn-rate) shows how to measure it properly.

## Common mistakes

- **Counting annual payments in full.** A £1,200 annual plan paid in March makes March look huge and every other month look empty. Divide by 12.
- **Mixing currencies without converting.** If you bill in pounds and dollars, convert to one currency at a consistent rate before adding.
- **Counting failed payments as MRR for months.** A subscription whose payment keeps failing isn't really paying. Decide after how long it stops counting, usually when the subscription is cancelled for non-payment.
- **Using revenue from your bank statement.** Payouts arrive late, in batches, minus fees. MRR is about subscriptions, not deposits.

## MRR, ARR and runway

**ARR (annual recurring revenue)** is MRR × 12. It's useful for talking to investors and for businesses with mostly annual plans. Day to day, MRR moves faster and shows problems sooner.

MRR also feeds the question that keeps founders up at night: how long will the cash last? Once you know MRR and your monthly costs, try the [runway calculator](/runway-calculator) to see when the lines cross.

And when you hit a round number, it's worth marking. The [milestone card maker](/mrr-milestone-card) makes a clean image for your first £1k, £5k or £10k of MRR.

## Doing it automatically

Working out MRR by hand from a spreadsheet is fine at 20 customers and painful at 200, especially once upgrades, discounts and annual plans mix in. Scenario connects to Stripe, read-only, and keeps MRR up to date every day, split into new, expansion, contraction and churn, with revenue by product and a forecast for next month. You can see it on a sample business in the [live demo](/demo).

## The takeaway

MRR is the monthly value of every active subscription today, at the price people actually pay, with annual plans divided by 12 and one-offs left out. Track how it splits into new, expansion, contraction and churned every month, because the parts tell you what to do next, and the total only tells you where you are.

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Scenario (https://use-scenario.com) is an AI finance partner for founders. Its figures are estimates, not financial advice.