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Net New MRR Explained: The Four Parts of MRR Growth

Net new MRR is new plus expansion, minus churned and contraction MRR. Breaking it into four parts shows exactly where growth comes from.

By Muhammad Ahmad. Published . 1 min read.

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Net new MRR is the change in monthly recurring revenue over a month. It's the headline growth number, but it's made of four movements that deserve their own attention.

The four parts

  • New MRR: revenue from customers who started paying this month.
  • Expansion MRR: upgrades, extra seats and add-ons from existing customers.
  • Churned MRR: revenue lost from customers who cancelled.
  • Contraction MRR: revenue lost from customers who downgraded but stayed.

Net new MRR = new + expansion − churned − contraction.

A month with $8,000 new and $2,000 expansion MRR

  1. Gained

    $8,000 + $2,000equals$10,000

  2. Lost

    $2,500 + $500equals$3,000

  3. Quick ratio

    $10,000 ÷ $3,000equals3.33x

Net new MRR is $7,000. The quick ratio of 3.33 adds context: $3.33 was gained for every $1 lost.

Why the parts matter more than the total

Two months with the same net new MRR can be very different. $13,000 gained and $10,000 lost is also $3,000 of growth, but with a quick ratio of just 1.3, most of what sales brings in is replacing what leaves. That business needs retention work more than more sales.

Tip: Chart the four parts month by month. A rising churned or contraction line is visible months before it shows up in total MRR.

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