What net new MRR is
Net new MRR is the change in your monthly recurring revenue over a period, after counting everything that added to it and everything that took away from it. The formula is new MRR plus expansion MRR, minus contraction MRR and churned MRR. If it is positive, your recurring revenue base grew; if it is negative, it shrank, whatever your sales team closed.
Why does it matter? Because the headline number most founders quote, new customers signed, only tells half the story. A month with ten new customers and twelve cancellations is a shrinking month. Net new MRR forces both sides onto one line, which is why investors and finance leads treat it as the honest growth number for a subscription business.
The four movements inside the MRR waterfall
An MRR waterfall starts with last month's MRR and walks it to this month's MRR through four movements. New MRR comes from customers who paid for the first time. Expansion MRR comes from existing customers who upgraded, added seats or bought an add-on. Contraction MRR is existing customers who downgraded but stayed. Churned MRR is customers who left entirely.
Keep each movement in its own row. Mixing them hides the problem you most need to see: a business with strong new sales and heavy churn looks fine in a single total, but the waterfall shows a leaky bucket. Count a customer in exactly one movement per month, and use the monthly equivalent of any annual plan so the rows stay comparable.
| Adds to MRR | Takes away from MRR | |
|---|---|---|
| First-time customers | New MRR | Not applicable |
| Existing customers paying more | Expansion MRR | Not applicable |
| Existing customers paying less | Not applicable | Contraction MRR |
| Customers who cancel | Not applicable | Churned MRR |
A worked example, line by line
Start the month at $40,000 in MRR. During the month, 12 new customers join at $500 each, which is $6,000 of new MRR. Existing customers upgrade for $1,500 of expansion MRR, some downgrade for $500 of contraction MRR, and cancellations remove $2,000 of churned MRR.
Net new MRR is 6,000 plus 1,500, minus 500, minus 2,000, which equals $5,000. Ending MRR is $45,000, so MRR grew 12.5 percent that month, since 5,000 divided by 40,000 is 0.125. These figures are an illustrative example, not a benchmark for any real company.
$40,000
starting MRR
+$7,500
new $6,000 plus expansion $1,500
-$2,500
contraction $500 plus churn $2,000
$45,000
ending MRR, net new MRR of $5,000
Why gross adds can mislead you
Now keep the same $6,000 of new MRR but change the losses. Suppose expansion is $500, contraction is $500 and churned MRR is $5,500. Net new MRR is 6,000 plus 500, minus 500, minus 5,500, which equals only $500. The sales number looks identical to the first example, yet the business barely grew.
The SaaS quick ratio captures the same idea as a single ratio: new plus expansion MRR divided by contraction plus churned MRR. In the first example that is 7,500 divided by 2,500, or 3.0. In the leaky example it is 6,500 divided by 6,000, or about 1.08. A founder reading only new MRR would think both months were equally good.
How net new MRR moves your runway
Runway is cash divided by monthly net burn, and net burn is monthly costs minus monthly revenue. If your costs stay flat, every dollar of net new MRR cuts net burn by roughly a dollar the next month. Take $150,000 in cash and $30,000 of net burn, which is 5 months of runway. Add $5,000 of net new MRR with costs unchanged and net burn falls to $25,000, which stretches the same cash to 6 months.
The effect is a simplification, since real costs usually rise with growth and a customer's cash can arrive later than the revenue is recognized. Still, the direction is the point: recurring growth that sticks is the cheapest runway you can build, and recurring growth that churns away is not runway at all.
Common mistakes when calculating it
The first mistake is counting a reactivated customer as new. If a customer who left comes back, most teams track that as a separate reactivation line or as new MRR, but the rule must be written down and applied the same way each month. The second is mixing one-time fees with recurring revenue; setup fees and usage overages belong outside MRR unless they truly recur.
The third mistake is measuring over a period too short to be useful. One month of net new MRR can swing on a single large customer, so look at a three-month average alongside the monthly figure. Finally, always show the four movements next to the total, because a healthy total can hide a churn problem for quarters before it shows up in cash.
Feeling the waterfall in Founder Runway
Net new MRR is easy to define and hard to feel until your cash depends on it. In Founder Runway, a run lasts 20 turns, every decision has four options, and you choose a B2B, B2C or B2G model and a starting stage from Pre-Seed to Series A. Choices that win customers, keep them or lose them move your MRR, cash and runway turn by turn.
A run can end in failure, a promising outcome, EBITDA positive or high-value exit potential. Watching whether your recurring revenue actually compounds is a fast way to learn why gross sales alone never saved a company. The game is a learning tool, not financial advice.
Frequently asked questions
What is net new MRR?
Net new MRR is the net change in monthly recurring revenue over a period. It equals new MRR plus expansion MRR, minus contraction MRR and churned MRR. A positive number means your recurring revenue base grew, a negative number means it shrank.
How do you calculate net new MRR?
Add new MRR and expansion MRR, then subtract contraction MRR and churned MRR. For example, 6,000 new plus 1,500 expansion, minus 500 contraction and 2,000 churn, gives 5,000 of net new MRR. You can also subtract starting MRR from ending MRR to check the result.
What is an MRR waterfall?
An MRR waterfall is a table or chart that walks starting MRR to ending MRR through four movements: new, expansion, contraction and churned MRR. It shows where growth comes from and where revenue leaks, which a single total cannot do.
Is net new MRR the same as MRR growth?
Not exactly. Net new MRR is the dollar change in MRR, while MRR growth rate is that change divided by starting MRR. In the worked example, 5,000 of net new MRR on a 40,000 base is 12.5 percent growth.
Can net new MRR be negative?
Yes. When contraction and churned MRR exceed new and expansion MRR, net new MRR is negative and the recurring revenue base shrinks. This is a warning sign even if sales are still closing new customers every month.
Test this decision in the game.
Apply the same assumption across one run and see which metric weakened three turns later.