What is Monthly Recurring Revenue?
Monthly Recurring Revenue (MRR) is the sum of all subscription revenue expressed as a monthly value. For most companies, MRR is the sum of all new business subscriptions and upgrades (sometimes called expansion), minus downgrades (or contractions) and cancelled subscriptions. Though not a Generally Accepted Accounting Principle (GAAP) value, it's the Revenue equivalent used by every SaaS company. MRR is used interchangeably with ARR.
How to calculate Monthly Recurring Revenue
ƒ Sum(Recurring Revenue irrespective of billing interval expressed as a monthly value)
If 10 customers are paying $150 per month, then MRR would be;
MRR = $1500
If 7 customers are paying $200 per month, and 3 customers are paying $100 per month, then MRR would be;
MRR = $1700
More about this metric
MRR can be broken down into new MRR, Expansion MRR, Reactivation MRR, Contraction MRR, and Churned MRR. It is important to also track these segments separately because they can be a good indication of the company’s overall growth, where revenue is increasing or decreasing.
This metric represents one of the most important KPIs for subscription based companies. It allows management to calculate growth rates, predict the future value of a customer through Customer Lifetime Value (LTV) and evaluate trends in the Average Selling Price (ASP).
Businesses want their MRR to increase over time. This can be accomplished by generating more prospects and, in turn, new customers, investing in customer success to reduce churn, increasing the price they charge for their subscription, or by increasing the revenue generated from existing customers by upselling.
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