What is Contracted Monthly Recurring Revenue?
Contracted Monthly Recurring Revenue refers to the amount of predictable, recurring revenue that a company has secured through signed contracts with customers on a monthly basis. For subscription-based businesses, Contracted MRR is a key metric as it reflects the revenue that is expected to recur every month based on active customer contracts. The metric also provides insights into customer satisfaction, retention, and the impact of pricing strategies.
Contracted MRR is not static and can change, both positively and negatively, based on several factors:
- New Contracts or Customers: This can have a positive impact on contracted MRR, as the new contracts will typically cause the MRR to increase.
- Upgrades and Expansions: When existing customers upgrade to a higher-tier plan or purchase additional services, this causes a positive impact to the contracted MRR.
- Downgrades: Customers may downgrade their subscription or services to a lower-priced plan, which will typically cause a reduction in the MRR, or a negative impact. 
- Churn: Customers may cancel their subscriptions, causing churn, which has a negative impact on contracted MRR.
- Price Adjustments: A company may respond to internal or market conditions by increasing its pricing – a positive impact on MRR – or by reducing its pricing, which would have a negative impact on MRR.
- Contract Renegotiations: If a company renegotiates existing contracts, it can experience an increase in MRR (if terms are extended or more services are included) or decrease in MRR (if pricing is reduced or services are removed).
Why is it Important to Monitor Contracted MRR?
For B2B companies, monitoring Contracted MRR allows insights into the financial health of the company and the long-term sustainability of its business model. Some benefits that can come from monitoring Contracted MRR include:
Predictable Revenue Stream
Contracted MRR represents the guaranteed monthly income from long-term agreements or contracts, making it easier for B2B companies to predict future revenue. Since B2B contracts often involve longer commitments, tracking this metric can help with long-range revenue forecasting.
Financial Health and Stability
Monitoring Contracted MRR helps businesses get a pulse on their financial health. Increasing MRR indicates growth and success in retaining and expanding customer relationships, while decreasing MRR can highlight underlying problems, such as customer dissatisfaction or pricing issues in relation to the overall market.
Customer Retention
Contracted MRR can be a window into what makes successful long-term customer relationships. By understanding what Contracted MRR trends are occurring and why, businesses can adapt to bring in more positive change or lessen negative contracted MRR.
Performance of Sales and Customer Success Teams
In B2B environments, Contracted MRR growth often reflects the success of the sales team in acquiring new customers and the customer success team in retaining and expanding customer relationships with existing clients. By monitoring this metric, businesses can evaluate to optimize team performance and keep Contracted MRR positive. 
Budgeting and Financial Forecasting
Contracted MRR provides a foundation for accurate budgeting and financial planning. Businesses can use it to forecast annual revenue and allocate resources for growth initiatives, marketing, R&D, or hiring.
Product and Pricing Strategy
Monitoring MRR allows B2B companies to evaluate the effectiveness of their product offerings and pricing strategy. If the Contracted MRR grows due to upsells or premium feature adoption, it indicates that the current offerings are aligned with market demand. Conversely, a drop in MRR may signal the need to revisit pricing or product features.
Competitive Benchmarking
Keeping track of MRR allows businesses to benchmark themselves against competitors. If the company’s growth rate in MRR is slower than industry averages, it might be losing market share or missing opportunities for growth.
Customer Lifecycle and Lifetime Value (CLV)
By tracking changes in Contracted MRR, companies can better understand the customer lifecycle and estimate the lifetime value (CLV) of their customers. This helps with decision-making in marketing and sales strategies, focusing resources on high-value customers.
Why is it Important to Monitor Contracted MRR?
The Formula for Contracted MRR is: Contracted MRR = (New MRR + Expansion MRR) − Churned MRR
In which New MRR represents the recurring revenue from newly acquired customers in the given month; Expansion MRR reflects additional recurring revenue from existing customers who upgrade, cross-sell, or purchase additional services/products during the period; and Churned MRR equals the recurring revenue lost from customers who cancel or downgrade their subscriptions during the month.
What is an example of Contracted MRR?
Let’s say for a given month, a SaaS company selling data analytics has the following:
- New MRR from new customers: $20,000
- Expansion MRR from existing customers upgrading their contracts: $7,000
- Churned MRR from lost or downgraded subscriptions: $3,000
Then the Contracted MRR would be:
Contracted MRR = ($20,000 + $7,000) − $3,000 = $24,000
In this case, the company has $24,000 in Contracted MRR for the month.
Adjustments for Discounts or Promotions
If discounts or special promotions are applied to certain contracts, these should be factored into the formula to adjust the MRR down accordingly for those specific customers.
Contracted MRR = (Subscription Fee per Customer) − (Discounts/Promotions per Customer)
Purpose
This formula gives a snapshot of the net growth (or loss) in predictable recurring revenue from active customer contracts. It helps B2B companies assess their sales effectiveness, customer retention, and growth trajectory over time.
Is there a Difference between Contracted MRR and Committed MRR? 
Contracted MRR and Committed MRR differ in their definition and in what they represent in the context of recurring revenue:
Contracted MRR
Contracted MRR is the monthly recurring revenue that is formally agreed upon in a contract between a company and its customer. The company expects to receive this revenue, based on the signed contract, and is counted even if the service has yet to be started.
For example, if a customer signs a contract for a SaaS data analytics subscription of $10,000 per month starting next quarter, this $10,000 is considered Contracted MRR right when the contract is signed, regardless of when payments start.
Committed MRR
Committed MRR represents the ongoing monthly revenue that a company is generating or expects to generate from existing customers, typically for services they are already receiving and have paid for. It often excludes contracts that haven’t started billing yet. Committed MRR deals with revenue the company is actively earning, without waiting on future billing cycles or contractual start dates.
For example, if a customer is actively using the data analytics service and paying $10,000 per month for it, this amount contributes to the Committed MRR.
The Difference between Contracted MRR and Committed MRR
Timing: Contracted MRR may reflect future revenue that hasn’t yet materialized, and Committed MRR reflects ongoing revenue from active contracts.
Risk Level: Committed MRR tends to be more solid because it’s based on already-active billing relationships, while Contracted MRR includes future commitments that may not yet have translated into cash flow.
Contracted MRR is a component of Net Dollar Retention that measures decreases in revenue. This includes contracts not renewed, cancelations, expired contracts, suspensions, and downgrade
