What is recurring revenue?
Unlike one-off sales, recurring revenue repeats on a schedule, such as monthly software subscriptions, memberships, maintenance plans or retainer agreements. Investors value it highly because it makes future revenue more predictable.
Key metrics
- MRR (monthly recurring revenue): total normalised monthly subscription revenue.
- ARR (annual recurring revenue): MRR × 12, or annual contract value.
- Churn rate: percentage of customers or revenue lost in a period.
- Net revenue retention (NRR): revenue kept from existing customers including upgrades and downgrades.
- Customer lifetime value (LTV): see [unit economics](/glossary/unit-economics).
Example
A software company has 400 customers paying $50 a month and 50 paying $200 a month. MRR = 20,000 + 10,000 = $30,000; ARR = $360,000.
Accounting
Recurring revenue is a management metric, not an accounting line. Under [revenue recognition](/glossary/revenue-recognition) rules, annual payments received upfront are recorded as [deferred revenue](/glossary/deferred-revenue) and recognised monthly.
How to grow it
- Reduce churn with good onboarding and support.
- Offer annual plans and upgrades.
- Add complementary products for existing customers.