What is Net New MRR?
Formula
Net New MRR = (New + Expansion + Reactivation) − (Contraction + Churned)
- New
- MRR from customers acquired in the period
- Expansion
- Increases on customers who were already active at period start
- Reactivation
- MRR from previously cancelled customers who returned in the period
- Contraction
- Decreases on customers who remain active, entered as a positive magnitude
- Churned
- MRR lost to full cancellations, also entered as a positive magnitude
Worked example
Two businesses, both starting the month at $60,000 MRR and both ending it at $64,000.
| Step | Value |
|---|---|
| 1Company A — New | $4,600 |
| 2Company A — Expansion + reactivation | $900 |
| 3Company A — Contraction + churned | $1,500 |
| 4Company A — Net new MRR | $4,000 |
| 5Company B — New | $16,200 |
| 6Company B — Expansion + reactivation | $2,800 |
| 7Company B — Contraction + churned | $15,000 |
| 8Company B — Net new MRR | $4,000 |
Result
Identical net new MRR and identical closing MRR. Company A adds $3.67 for every dollar it loses; Company B adds $1.27 and is spending roughly four times the acquisition budget to stand in the same place. The headline number cannot tell them apart.
The bridge between one month's MRR and the next
Net new MRR is an identity: opening MRR plus net new equals closing MRR, with no residual. That makes it the reconciliation every subscription report should be able to produce, and a good integrity check — if the five movements do not bridge the two totals exactly, something is being double-counted or dropped, usually a mid-month plan change or a reactivation classified as new.
Why the components matter more than the total
The worked example is the whole argument. Two companies, same opening balance, same closing balance, same net new MRR, entirely different businesses. Company B is running an acquisition treadmill: it must win $16,200 of new revenue every month to net $4,000, so the moment marketing spend pauses or a channel saturates, growth does not slow — it reverses. Company A can pause acquisition for a month and stay roughly flat.
The ratio underneath that difference is the quick ratio: gained over lost, 3.67 against 1.27. Net new MRR is the level; the quick ratio is the quality of it. Neither is sufficient alone.
Reading the five movements
- New — revenue from customers acquired in the period. The acquisition engine.
- Expansion — growth from the installed base. The cheapest revenue available.
- Reactivation — cancelled customers returning. Kept separate because win-back has its own economics; folded into new, it flatters acquisition, and folded into expansion, it flatters retention.
- Contraction — retained customers paying less. An early churn warning.
- Churned — customers gone entirely. The floor your acquisition has to clear before anything counts as growth.
Presented as a waterfall from opening to closing MRR, these five bars answer in one glance what a dozen separate metrics answer slowly.
Negative net new MRR
Negative net new means the business shrank that month. That happens for benign reasons — a seasonal cancellation cluster, a large annual contract lapsing on schedule, a deliberate pricing migration — and for structural ones. The diagnostic is which component moved. New MRR falling is an acquisition problem with a marketing answer. Churned and contraction rising is a retention problem, and no amount of acquisition spend fixes it, because you are refilling a bucket whose hole is getting larger.
One month negative is noise at small scale, especially in a base under a few hundred customers where a handful of accounts swings the total. Three consecutive negative months is a trend, and it is worth acting on before it appears in runway.
Measure it from transitions, not from differences
The five components have to come from per-customer, per-day plan transitions. Differencing account balances between two month-ends collapses everything that happened in between: an account that upgraded and then downgraded reports as unchanged, a customer who churned and reactivated in the same month vanishes from both categories, and the movement ledger stops reconciling to the totals it is supposed to explain.
Where Net New MRR goes wrong
- Reporting net new MRR without its components. Two businesses with identical net new can have gross gains that differ by 3x, and only the breakdown distinguishes durable growth from an acquisition treadmill.
- Folding reactivations into new MRR. Win-back is cheaper and structurally different from net-new acquisition, so merging them overstates acquisition efficiency and hides how well the win-back motion is working.
- Computing movements by differencing month-end balances. Anything that happened and reversed inside the month disappears, and the components stop bridging opening MRR to closing MRR exactly.
- Treating one negative month as a crisis in a small base. Below a few hundred customers, a single large cancellation can swing the total; the signal is three consecutive months, not one.
- Responding to negative net new with acquisition spend without checking which component moved. If churn and contraction are what rose, more customers arrive into the same leaking base and the spend buys a slower decline.
Typical ranges
Net new MRR is a size-dependent figure with no cross-company benchmark — $4,000 of net new is transformative at $40,000 MRR and a rounding error at $4m. The comparable versions are its ratio form: net new as a percentage of opening MRR, which is the monthly growth rate, and gross gained over gross lost, which is the quick ratio. Both are readable across companies in a way the absolute figure is not.
Related
Metrics that move with this one
No metric explains a business on its own. These are the figures that qualify, offset or explain Net New MRR.
Monthly Recurring Revenue (MRR)
Monthly recurring revenue (MRR) is the monthly-normalised value of every active paid subscription at a point in time: monthly plans at face value, quarterly plans divided by three, annual plans divided by twelve, plus recurring add-ons and less active discounts. It is a snapshot of contracted run rate rather than an accounting figure, so it deliberately excludes one-off charges, setup fees, usage overages and refunds, and it has no definition in GAAP or IFRS.
Learn moreExpansion MRR
Expansion MRR is the additional monthly recurring revenue generated by existing customers in a period through upgrades, seat additions, add-on purchases and price increases — revenue growth from accounts already on the books rather than from new ones. It is measured as a positive movement against the prior period's MRR, excludes anything from customers acquired in the period, and is the component that allows net revenue retention to exceed 100%.
Learn moreContraction MRR
Contraction MRR is recurring revenue lost from customers who stayed but now pay less — downgrades to a cheaper plan, removed seats, dropped add-ons and newly applied discounts. It is distinct from churned MRR, which comes from customers who left entirely, and keeping the two separate matters because a shrinking account is a retained relationship with a product or pricing problem, while a churned one is gone.
Learn moreMRR Growth Rate
MRR growth rate is the percentage change in monthly recurring revenue from one period to the next, calculated as current MRR divided by prior MRR, minus one, times one hundred. Reported monthly it is the standard pace measure for a subscription business, and it is compounding: 8% a month is roughly 151% a year, not 96%, because each month's growth applies to the base the previous month produced.
Learn moreSaaS Quick Ratio
The SaaS quick ratio divides new plus expansion MRR by churned plus contraction MRR, showing how much recurring revenue a company adds for every unit it loses; above 1 the business is growing net of losses. It shares a name with the accounting quick ratio — a balance-sheet liquidity measure of current assets to current liabilities — but the two are unrelated, use different inputs and answer different questions.
Learn moreChurn Rate
Churn rate is the share of customers or recurring revenue lost over a period, most often calculated as the number of customers who cancelled during a month divided by the number active at the start of it. There is no single correct churn rate: customer churn and revenue churn, gross and net, and start-of-period and average denominators all produce different figures from identical data, so a churn rate is only interpretable alongside the definition that produced it.
Learn moreNet New MRR: frequently asked questions
How do you calculate net new MRR?
What does negative net new MRR mean?
Should reactivations be counted in net new MRR?
What is the difference between net new MRR and MRR growth rate?
Why do my movement components not add up to my MRR change?
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