Types of MRR: New, Expansion, Contraction, and Churn
Published on March 4, 2026 · Jules, Founder of NoNoiseMetrics · 10min read
Updated on April 15, 2026
Looking for the full deep-dive? For worked examples, the 5 traps that inflate MRR, and the complete MRR bridge breakdown, read What Is MRR: The Clean Version. Traps That Fake Growth.
There are five types of MRR that determine whether a SaaS business is actually growing or just appearing to grow: New MRR, Expansion MRR, Contraction MRR, Churned MRR, and Reactivation MRR. Tracking MRR as a single number hides the forces pulling it in different directions. A business adding $3,000 in new MRR while losing $2,800 to churn and contraction has a very different trajectory than one adding $3,000 with only $500 in losses, even if both report the same headline MRR this month.
This guide breaks down each type of MRR with its formula and a worked example, shows how they connect through the MRR waterfall, and explains which type to prioritise based on your stage.
Types of MRR: New, Expansion, Contraction, and Churn
MRR represents normalized monthly recurring revenue. It’s the sum of all active subscriptions converted to a monthly value.
Basic formula:
MRR = Σ (monthly price of each active subscription)For annual subscriptions: divide by 12 to get the monthly contribution.
Example:
- 50 customers at €19/month = €950
- 10 customers at €190/year = €1,900 / 12 = €158.33/month
- Total MRR = €1,108.33
The 5 Types of MRR
Healthy MRR breaks down into five distinct types. Each one tells a different part of the revenue story.
New MRR
Definition: Revenue from customers who subscribed for the first time this month.
Formula:
New MRR = sum of first-month subscription revenue from new customersWorked example: You sign 8 new customers this month. Five choose the $49/month plan, three choose $99/month.
New MRR = (5 x 49) + (3 x 99) = 245 + 297 = $542New MRR is the clearest signal of acquisition momentum. If new MRR is flat or declining while marketing spend increases, customer acquisition cost is rising, a problem that compounds quickly. For the clean definition of what counts as MRR before you calculate any of these types, the MRR guide covers each trap.
Expansion MRR
Definition: Additional monthly revenue from existing customers who upgraded their plan, added seats, or increased usage compared to the previous month.
Formula:
Expansion MRR = sum of (new MRR value - previous MRR value) for each customer who increasedWorked example: Three existing customers upgraded this month. Customer A moved from $49 to $99 (+$50). Customer B added 2 seats at $20 each (+$40). Customer C moved from annual $468/yr to annual $948/yr, so their monthly MRR went from $39 to $79 (+$40).
Expansion MRR = 50 + 40 + 40 = $130Expansion MRR is the engine behind net revenue retention above 100%. A business with strong expansion can grow its existing revenue base even without new customers. If expansion MRR is consistently zero, the pricing structure likely lacks a clear upgrade path, the value metric may not be scaling with usage.
Contraction MRR
Definition: Revenue lost from existing customers who downgraded to a lower plan or reduced their usage/seats, but did not cancel entirely.
Formula:
Contraction MRR = sum of (previous MRR value - new MRR value) for each customer who decreasedWorked example: Two customers downgraded this month. Customer D moved from $99 to $49 (-$50). Customer E removed 3 seats at $20 each (-$60).
Contraction MRR = 50 + 60 = $110Contraction is often an early warning signal before full churn. A customer who downgrades is telling you the product delivers less value than they initially thought, or that their budget tightened. If contraction MRR is rising across multiple plan tiers, the packaging needs attention.
Churned MRR
Definition: Revenue lost from customers who cancelled their subscription entirely.
Formula:
Churned MRR = sum of MRR from all customers who cancelled this monthWorked example: Four customers cancelled. Two were on $49/month plans, one on $99/month, and one annual customer whose normalised MRR was $79/month.
Churned MRR = (2 x 49) + 99 + 79 = 98 + 99 + 79 = $276Churned MRR is the number that hurts. It represents permanent revenue loss (until reactivation). Separating voluntary churn (customer chose to cancel) from involuntary churn (failed payment) is critical because the fixes are completely different. For the exact churn rate calculation, the formula guide covers both customer and revenue churn.
Reactivation MRR
Definition: Revenue from customers who previously cancelled but have resubscribed.
Formula:
Reactivation MRR = sum of MRR from returning customers who had a prior cancellationWorked example: Two former customers resubscribed. One returned to the $49/month plan, the other to $99/month.
Reactivation MRR = 49 + 99 = $148Reactivation MRR is tracked separately because returning customers behave differently from new ones, they already know the product, which often means higher retention. Many billing tools do not separate reactivation from new MRR automatically. If reactivation is significant, it may signal that your product solves a recurring need but your pricing or packaging creates temporary exits.
The MRR Waterfall: How the Types Connect
The five types of MRR flow together in a single equation called the MRR waterfall (or MRR bridge):
Net New MRR = New MRR + Expansion MRR + Reactivation MRR - Contraction MRR - Churned MRRAnd the ending MRR for the month:
Ending MRR = Starting MRR + Net New MRRFull worked example using the numbers above:
Starting MRR: $8,000
+ New MRR: +$542
+ Expansion MRR: +$130
+ Reactivation: +$148
- Contraction MRR: -$110
- Churned MRR: -$276
= Net New MRR: +$434
Ending MRR: $8,434The waterfall is the most important operational view in SaaS. A positive Net New MRR means the recurring engine is growing. A negative one means the business is shrinking regardless of how many new customers sign up. This waterfall is the foundation of clean ARR and MRR tracking, and the starting point for converting MRR to ARR.
Track your MRR waterfall automatically. Connect Stripe and see the breakdown →
Which MRR Type to Watch First
The most important type depends on your stage:
Pre-product-market fit (< $5k MRR): Watch Churned MRR first. If early customers leave faster than you can replace them, nothing else matters. High churn at this stage usually means the product is not solving a real enough problem, or solving it for the wrong audience.
Early growth ($5k-$20k MRR): Watch New MRR and Churned MRR together. The gap between them is your net growth. If new MRR only slightly exceeds churned MRR, growth is fragile and vulnerable to any acquisition slowdown.
Scaling ($20k-$100k MRR): Watch Expansion MRR and Contraction MRR. At this stage, NRR becomes the defining metric. Strong expansion relative to contraction and churn means the existing base compounds, the business grows even during months when new acquisition slows.
Established ($100k+ MRR): Watch all five, but especially the ratio between expansion and churn. Best-in-class SaaS at this stage has NRR above 110%, meaning expansion alone more than replaces all lost revenue. If expansion is flat while churn is steady, the pricing model may need restructuring.
For the MRR meaning and how it differs from Stripe revenue, see the dedicated guide. For the full MRR and ARR relationship, see the Stripe MRR guide.
The Most Common Mistakes
❌ Mistake 1: Including one-time payments
A customer who buys a one-time license or setup fee doesn’t generate MRR. MRR only counts recurring revenue.
❌ Mistake 2: Counting free trials
A user on trial isn’t paying yet. Only count MRR from the first successful payment.
❌ Mistake 3: Not normalizing annual subscriptions
If you have 10 customers paying €240/year, your MRR is €200 (10 × €20/month), not €2,400.
❌ Mistake 4: Counting failed invoices
Stripe can create an invoice without the payment succeeding. Only count invoices with status === 'paid'.
❌ Mistake 5: Forgetting grace period subscriptions
A past_due subscription hasn’t churned yet. Stripe retries automatically. Include or exclude based on your policy.
Why Your MRR in Stripe is Often Wrong
Stripe shows you collections (what you received), not your MRR (what you’ll receive recurring).
- An annual payment of €240 appears as €240 in Stripe, not €20/month
- Refunds aren’t automatically subtracted from MRR
- Stripe doesn’t distinguish new/expansion/churn
That’s exactly why tools like NoNoiseMetrics exist: to calculate your real MRR, with the right definitions, directly from your Stripe data. For a deeper dive into every trap that inflates MRR, see What Is MRR? The Clean Version. For the formal MRR definition and how it differs from Stripe revenue, see Monthly Recurring Revenue Meaning.
How to Track Your MRR Effectively
- Define your rules once and for all: what do you do with trials, pauses, refunds?
- Automate the calculation: don’t recalculate manually every month
- Track the MRR waterfall: understand where growth (or loss) comes from
- Alert on anomalies: MRR dropping 10% in a month deserves immediate investigation
Metrics That Complement MRR
Once your MRR is under control, these metrics become accessible:
- ARR = MRR × 12 (annualized view), see the ARR formula and what not to count
- Churn rate = Churned MRR / MRR at start of month
- NRR (Net Revenue Retention) = how your existing base evolves without new customers
- LTV = average MRR per customer / monthly churn rate
- ARPU = MRR / active customers, the monetisation signal that complements MRR
Once these are tracked, a SaaS dashboard with 8 metrics is enough to run the business from one screen.
FAQ
What is the difference between MRR and revenue?
MRR is normalized monthly recurring revenue from active subscriptions only. Total revenue includes one-time charges, setup fees, and non-recurring items.
Does MRR include annual subscriptions?
Yes, but normalized to monthly. A €1,200/year subscription contributes €100/month to MRR.
Should I include trials in MRR?
No. Only count paying subscriptions. Including trials inflates MRR and gives a false picture. Track trial-to-paid conversion separately.
How is MRR different from ARR?
ARR = MRR × 12. Use MRR for operational decisions and ARR for annual planning and investor reporting.
What is the most important type of MRR to track?
Net New MRR, the sum of new, expansion, and reactivation MRR minus contraction and churned MRR. This single number tells you whether your recurring revenue base is growing or shrinking. If net new MRR is consistently positive, your business is compounding. If it is negative, you are losing ground regardless of how many new customers you add.
How do I calculate expansion MRR?
Expansion MRR is the additional monthly revenue from existing customers who upgraded, added seats, or increased usage compared to the previous month. Sum the MRR increase for every customer whose subscription value went up. Example: a customer moves from $49/month to $99/month, that is $50 in expansion MRR. See the complete MRR guide.
What is reactivation MRR?
Reactivation MRR is revenue from customers who previously cancelled but have re-subscribed. It is tracked separately because reactivated customers behave differently from new ones, they already know your product, which often means higher retention. Most Stripe-based tools do not separate reactivation from new MRR automatically.
How does MRR relate to churn rate?
Churned MRR directly feeds your revenue churn rate calculation: monthly revenue churn = churned MRR divided by starting MRR. If you start the month with $10,000 MRR and lose $300 in cancellations, your gross revenue churn is 3%. Tracking MRR by type helps you isolate whether churn, contraction, or lack of new revenue is the problem.
NoNoiseMetrics calculates all these metrics automatically from your Stripe data, with exactly the same definitions as Stripe Sigma. Try it free up to €10K MRR.
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