Monthly recurring revenue: tracking the heartbeat of your business

Revenue for a membership business can look chaotic. Annual renewals land in lumps, workshops sell out one month and not the next, and refunds arrive at awkward times. Looking only at the money in your bank account, it is hard to tell whether the underlying business is growing or shrinking.

Monthly recurring revenue, or MRR, cuts through that noise. It is the predictable income your members are committed to paying each month, and tracking how it changes, and why, gives you the clearest single picture of your membership's health.

What counts as recurring revenue

MRR includes only the payments members make on an ongoing basis for their membership: monthly subscriptions, plus annual or quarterly subscriptions converted to a monthly figure. It leaves out:

• One-time purchases, such as a single course, a template pack or an event ticket.
• Setup or joining fees.
• Coaching sessions or other extras sold individually.
• Sales tax or similar charges you collect on someone else's behalf.

That does not make those sources unimportant. It simply keeps MRR focused on the revenue that repeats without you having to sell it again. Track one-time income separately.

Count what members actually pay, not your list price. If a member pays $40 a month after a permanent discount on a $50 plan, they contribute $40 to MRR. Free trial users contribute nothing until they pay.

Converting other billing periods

To get a monthly figure, divide each payment by the number of months it covers. A $600 annual plan contributes $50 a month to MRR. A $135 quarterly plan contributes $45.

This matters because counting the full $600 in the month it arrives makes that month look wonderful and the next eleven look poor. Spreading it evenly shows the commitment for what it is. Your bank balance still tells you about cash, which you need for paying bills; MRR tells you about the business. If you are still deciding whether to offer yearly billing at all, see offering both monthly and annual plans.

The five movements in MRR

The real value of MRR comes from breaking each month's change into its parts. There are five:

1. New MRR: revenue from members who joined during the month.
2. Expansion MRR: extra revenue from existing members who upgraded to a higher level or added a recurring extra.
3. Contraction MRR: revenue lost when existing members downgraded.
4. Churned MRR: revenue lost when members cancelled or their payments failed for good.
5. Reactivation MRR: revenue from former members who came back.

Starting MRR, plus new, expansion and reactivation, minus contraction and churned, equals ending MRR. If your figures do not reconcile, something has been missed.

A worked month

Here is a hypothetical business coaching program with three levels: Foundations at $50 a month, Growth at $150 and Mastermind at $400. The figures are invented for illustration.

• Starting MRR: $10,000
• New MRR: 16 new Foundations members and 2 new Growth members = $800 + $300 = $1,100
• Expansion MRR: 3 members upgraded from Foundations to Growth, adding $100 each = $300
• Contraction MRR: 1 member moved from Mastermind to Growth, losing $250
• Churned MRR: 8 Foundations members and 2 Growth members cancelled = $400 + $300 = $700
• Reactivation MRR: 1 former Growth member returned = $150

Ending MRR is $10,000 + $1,100 + $300 + $150 − $250 − $700 = $10,600. Net new MRR for the month is $600.

Reading the movements

The ending figure says the program grew. The movements say much more.

• Growth can hide a leak. The program brought in $1,100 of new revenue but lost $700 to cancellations. If marketing slowed for a month, MRR would fall. Churned MRR is the number to shrink.
• Expansion is a sign of value. Members upgrading on their own tells you the higher levels solve a real need. If expansion is always zero, check whether your tiers are clearly different and whether members even know the next level exists.
• Contraction is an early warning. A downgrade is often a member deciding the membership is worth less to them than it was. It can come before a cancellation.
• Existing members can grow the business too. Take starting MRR, add expansion, subtract contraction and churn, and divide by starting MRR. Here that is $9,350 ÷ $10,000, or 93.5%. This figure, often called net revenue retention, shows how much of your revenue base you kept before counting any new members. Above 100% means your existing members are growing the business on their own.

Pitfalls that make MRR misleading

• Failed payments. Decide when a member with a failed payment stops counting. Leaving them in for months overstates MRR; removing them on the first decline overstates churn when many recover. A common approach is to remove them once your payment retry period ends.
• Temporary discounts. If a member pays $10 for their first three months and then $30, count $10 now and record the step up as expansion when it happens.
• Refunds. A refunded annual plan should stop contributing from the month of the refund.
• Pauses. Paused members contribute nothing while paused. Count their return as reactivation, and treat it the same way every time.
• Mixing in cash. A big month of one-time sales is good news, but it belongs in a separate line, not in MRR.

Setting up MRR tracking

1. Export your active subscriptions with plan, price actually paid and billing period.
2. Convert each to a monthly amount and add them up. That is your starting MRR.
3. Each month, list new, upgraded, downgraded, cancelled and returning members, with the monthly amount for each.
4. Calculate the five movements and check that they reconcile with ending MRR.
5. Chart ending MRR and churned MRR over time. The first shows your direction; the second shows what is holding you back.