Net New MRR

A subscription company reports one number every month. Last month $35,000, this month $40,000. All anyone reading that learns is that revenue went up by $5,000, and the difference between two totals says nothing about where the money came from.

The trouble is that the same $5,000 comes out of completely different situations. A month with a lot of new customers and an equal number of existing ones walking out lands at $5,000. So does a month with few new customers and nobody leaving. The first company collapses the moment it stops advertising; the second one holds. A single total doesn't tell them apart.

So the monthly meeting kept stalling in the same spot. The CEO would ask why revenue went up $5,000 and hear "we got more customers." She would ask whether next month would go up as much and get no answer at all.

Net new MRR stops reporting that gap as one line. It records what came in and what went out separately, then adds and subtracts. The result is still $5,000, but the pieces behind it are still on the screen, so the reason for the $5,000 is available in the same view.

Add up everything that grew during the month and subtract everything that disappeared. New plus expansion minus churn, and that's the whole formula.

The amounts involved are monthly recurring revenue (MRR) — the sum of what customers are committed to paying again this month. A hundred accounts paying an average of $400 a month make $40,000. One-time money such as an onboarding fee is left out, because it won't arrive again next month.

There are three components.

1. New MRR — revenue added by customers who paid for the first time this month. Eight accounts signing up for $6,500 a month between them make $6,500.
2. Expansion MRR — extra revenue from customers who were already there and added seats or moved to a higher plan. An account that paid $400 and moved to a $650 plan contributes the $250 of increase. The original $400 was there last month, so it isn't movement.
3. Churned MRR — revenue lost to cancellations and downgrades. A cancellation brings in everything that account was paying; a downgrade brings in only the difference.

With $6,500 new, $2,500 expansion and $4,000 churned, net new MRR is $5,000. If last month's MRR was $35,000, this month lands at $40,000.

That last sentence is also the check. Last month's total plus net new has to equal this month's total. When it doesn't, money is leaking out of one of the components. The usual causes are an annual contract booked as twelve months of new revenue in the month it was paid, or a refund adjustment that never made it into any component.

The result can be negative. When churn is larger than new and expansion together, net new MRR prints as a minus and the company shrank that month.

The absolute amount decides nothing on its own. Net new of $5,000 is 12.5 percent of monthly growth for a company at $40,000 MRR and 1.25 percent for a company at $400,000. The same dollar figure is fast growth on one side and a flat month on the other, which is why net new is always read next to its ratio against last month's recurring revenue.

Composition comes next. A company that got to $5,000 with $9,000 of new revenue and $4,000 churned and a company that got there with $5,500 new and $500 churned hold the same number in very different conditions. The first is pouring water hard into a leaking bucket; the second has an intact bucket.

Three things work as reference lines.

1. Churn as a share of what came in. Once churned MRR passes 30 percent of new plus expansion, close to a third of the money arriving is going straight back out.
2. Expansion as a share of the total. An established subscription business gets roughly a third of its net new from expansion. When new revenue is all of it, growth speed is tied directly to the cost of finding more customers.
3. How long the sign holds. One negative month can be a single large account leaving. Three in a row points at the product or the pricing rather than at the top of the funnel.

"Net new was $5,000 this month, but new was $9,000 and churn was $4,000. The total looks fine and the inside isn't."

The target was met, but the outflow is large enough that the current approach won't last.

"If next month's net new target is $6,500, are we filling it with new customers only, or counting expansion too?"

A request to decide which component carries the target. Different teams own different components.

"Net new was negative last month and it came back this month. One big account leaving was all of it."

An explanation that the minus was a one-off event rather than a structural problem.

At Pagedeck the first slide of the monthly leadership meeting is this number. What Grace puts on screen is not one net new line but three — new, expansion, churn — and the total underneath. Even when the total hits the target, a churn line thicker than last month's gets Sofia asked right there which accounts left and why. The new line Ravi brings and the churn line Sofia brings meet in this one figure, so in a month where one side did well and the other fell apart, the total alone decides nothing.

The most common mistake is reading the number as cash that arrived this month. Both are money, both are in dollars, and they blur together easily. But net new MRR is the change in revenue committed to recurring, not the amount that hit the bank account. An annual contract paid in one $45,000 transfer puts $45,000 in the bank and $3,750 into net new, because that is one month's share of it. Mixing the two leads to spending more in a strong net new month on money that isn't there yet.

Treating a positive sign as sufficient is the other one. Revenue went up every month, so nothing looks wrong. A plus sign only says that inflow beat outflow, though. Churn can grow month after month and the sign still stays positive as long as new revenue is pushed harder. Six months of that leaves the customer base no larger than it was, and one cut to the advertising budget drops net new below zero.