Bookkeeping for SaaS Companies: How to Handle Monthly Recurring Revenue (MRR) Properly

Software-as-a-service (SaaS) is big business, generating over $390 billion worldwide each year and forecasted to grow at a rate of 19.38% annually. Annual subscriptions and enterprise options may be available for a SaaS, but monthly subscriptions are most common.

Bookkeeping for SaaS requires a complete understanding of monthly recurring revenue (MRR), how to calculate it and the best practice to handle it.

What is MRR in SaaS and Why is it Important?

MRR is how much monthly recurring revenue your tech company has each month. For the most part, this revenue is predictable. Let’s assume that 10,000 people use your paid platform each month at $10. Then, your MRR is $100,000.

You can rely on this revenue every month, but there will likely be obvious:

Subscriber loss
Subscriber growth

If you decide to offer a new tier that provides features that are in-demand, your MRR should increase with each upgrade.

But you also need to consider MMR-related:

Expansion (from your upsells)
Downgrade (how many upsells reduce back to lower-priced tiers)
Churn (cancellations)
New (Increase in customers)
Reactivation (revenue from lost subs resubscribing)
Contraction (reduction in revenue from churn and downgrades)

All of these metrics help you better understand how your company is growing or contracting and its current short-term health.

You can use these metrics to better report growth, net expansion, asset trends, customer lifetime value (CLV) and future Generally Accepted Accounting Principles (GAAP), too.

MRR and GAAP Revenue

GAAP lacks an accounting measure for MMR and also annual recurring revenue, leading to a lack of regulations on how to define this revenue. For example, MRR is recorded on a monthly basis.

If your subscription is $100 monthly, this is what’s recorded.

GAAP may use a daily recognition model, computing revenue by each day of the month. You may be wondering why this is a bad idea, but it’s hard to calculate for February, which has fewer days than March and can complicate growth stats.

If analyzing March’s growth period, it may seem that there is a 10% growth month-over-month, yet it is a difference in days and not growth. Annual recurring revenue also becomes complex because subscriptions can start in the middle of any month.

SaaS revenue recognition requires someone who knows how to best manage your books and finances to allow you the time to spend on what matters most: your service growth and quality.

Calculating MRR Properly

So, how do you calculate MRR properly? A subscription that starts on the first of the month seems simple enough, but what happens if it starts on the seventh? You must consider:

Total days in the month
Length of your contract
Upgrades, renewals, etc.

Your basic MRR is your total customers * average monthly revenue per user. If you have 100 customers paying $50 per month, your MRR is (100*50) = $5,000.

What happens if a customer signs up on the 15th of April, 2025?

If you calculate the $50 for this sign-up, it’s not fully accurate for April 2025 because in April 2026, the customer will not pay for the full month.

Revenue can be lost in this case.

For example:

Imagine a $1,200 contract ($100 per month)
April 2025 – $100
April 2026 – $100
$100 each month from May – March (11 months)

Did you really earn $1,300 for a $1,200 contract? No. You need to have a way to calculate middle-of-month signups like this. Calculating the daily rate for these months may make sense, but it’s something to discuss with your accounting professional because it can skew your MRR.

It’s up to you (or your bookkeeper) to make these critical adjustments to your MRR,

Best Practices for Handling MRR

Accounting for IT companies that offer subscriptions or SaaS can be complex, and when working with little liquidity or trying to achieve rapid growth, you want a reliable MRR metric to follow. Your decisions may be based on faulty data, but following these best practices can help:

Accurately divide non-monthly subscriptions into months for better tracking. For example, do not count a customer paying $1,200 upfront in a single month. Instead, divide it by 12 and count it into your MRR.
Consider any adjustment to pricing, such as a discount to certain customers, to avoid inflating your MRR.
Add an MRR for both expansion and contraction for a broad view of your company’s financial health.

Remember, your MRR is not part of your quarterly or annual tax burden. Instead, it’s a figure that will help you make better decisions.

Bookkeeping for SaaS companies is complex, and it only becomes more complicated as your company grows. If you handle your MMR properly, it can paint a clear picture of your company’s financial health with insights into contraction, growth, upgrade rates and other crucial metrics.

Schedule a consultation to learn more about bookkeeping for SaaS or how we can help you with your accounting needs.