The headline number is easy to grow and easy to misread. What you actually manage is the movement underneath it. Every month, MRR changes through four flows.
The four MRR movements
- New MRR is recurring revenue added from customers who signed this month. - Expansion MRR is added revenue from existing customers who upgraded, added seats, or bought add-ons. - Contraction MRR is revenue lost from customers who stayed but now pay less, through downgrades or reduced usage. - Churned MRR is revenue lost from customers who canceled outright.
New and expansion push MRR up. Contraction and churn pull it down. Some teams track a fifth flow, reactivation MRR, for customers who return after canceling. The four core movements reconcile through one identity:
Ending MRR = Beginning MRR + New + Expansion - Contraction - ChurnThe middle four terms are net new MRR. A business can grow ending MRR while net new MRR shrinks, because one large renewal can mask rising churn underneath it. That is why the movements carry more signal than the headline total.
How ORM reconciles the movements
ORM builds a monthly retention waterfall where each month's beginning ARR equals the prior month's ending ARR. The balance then walks up through new customer, new product, and product increase on the expansion side, and down through churned customer, churned product, and product decrease on the contraction side. The same waterfall surfaces Gross Revenue Retention and Net Revenue Retention in one view. Reconciling the base month over month keeps the forecast honest, because every ending number ties back to a cause.
How the movements roll into the forecast
A forecast projects each movement forward. New MRR comes from pipeline and deals created and closed inside the period. Expansion comes from the installed base. Contraction and churn come from renewal risk. ORM decomposes forward revenue into carry-over deals already in pipeline, in-quarter deals not yet visible, and pull-forward deals from future periods, rather than treating a pipeline-coverage multiple as the answer. On new and expansion, forecast accuracy usually lands near 90%, but it takes heavy manual work and drifts as market conditions change. ORM targets 95% and holds it from day one through day ninety of the quarter without manual adjustment.
Frequently Asked Questions
How do you calculate net new MRR?
Net New MRR = New MRR + Expansion MRR - Contraction MRR - Churned MRR. Add it to beginning MRR to get ending MRR. If beginning MRR is $500K and you add $40K new and $20K expansion while losing $10K contraction and $15K churn, ending MRR is $535K and net new MRR is $35K.
What is the difference between contraction and churn?
Contraction is revenue lost from customers who stay but pay less, through downgrades, seat reductions, or dropped add-ons. Churn is revenue lost from customers who cancel completely. Both lower MRR, but they signal different problems: contraction points to value or pricing fit, churn points to retention.
How does MRR roll into a revenue forecast?
A forecast projects each movement forward: new MRR from pipeline and in-quarter creation, expansion from the existing base, and contraction plus churn from renewal risk. Netting the four against beginning MRR produces projected ending MRR, which annualizes to ARR by multiplying by 12.
Should you forecast in MRR or ARR?
Use MRR when billing is monthly or usage varies month to month, because it registers movement sooner. Use ARR for annual contracts and board reporting. ARR equals MRR times 12, so the movement logic is identical at either cadence.
Put these metrics to work
ORM builds custom revenue forecast models that turn concepts like monthly recurring revenue (mrr) into prescriptive action for your team.
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