Key Insight
MRR is a lagging indicator of business health. Watch the components — new MRR, churn MRR, expansion MRR — not just the total. A flat MRR with high churn and equal new sales is a treadmill, not a stable business.
The MRR Waterfall
Sophisticated buyers analyze MRR by component:
- New MRR: Revenue from brand-new customers
- Expansion MRR: Additional revenue from existing customers (upsells, upgrades)
- Contraction MRR: Revenue lost from existing customers (downgrades)
- Churned MRR: Revenue lost from customers who canceled entirely
Net New MRR = New + Expansion − Contraction − Churn
A business with $15K new MRR and $14K churn MRR each month isn't growing — it's running in place and burning through its customer base.
MRR in Business Valuation
For subscription service businesses (pest control, lawn care, managed IT, SaaS), buyers often underwrite MRR stability and growth trajectory alongside EBITDA or SDE. A business with stable or growing MRR supports a higher multiple than one with the same trailing revenue but visible MRR decline.
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