Monthly Recurring Revenue (MRR)

What is MRR?

MRR, an acronym for Monthly Recurring Revenue is your company's recurring revenue standardized on a monthly basis. It averages your pricing plans and billing duration into one consistent number that can be tracked over time. The subscription and SaaS-based companies mostly follow this metric. 

Recurring revenue is one of the reasons why the SaaS business seems so appealing. Here one doesn't have to bother about a one-time deal that might not return. If your product is amazing, they will return to you every single time.

How to calculate MRR?

Here is the formula to calculate Monthly Recurring Revenue:

MRR = Average Revenue per Account x Total no. of Customers Monthly

So, suppose 20 customers are paying you $200 this month; it means an MRR of $2,000.

20 customers & $200/mo = $2,000 MRR

What does MRR mean in SaaS?

Analyzing MRR can be an essential part of a business; it gives a clear picture of your business's progress. 

  • Reactivation MRR: The MRR gained from obtaining back formerly lost customers.

  • Expansion MRR: This includes contract upsells, cross-sells, and add-ons.

  • New MRR: This encloses MRR generated from net new business.

  • Churn MRR: This contains the exact revenue your business loses after the customer cancels the subscription.

  • Upgrade MRR: It indicates revenue generated when the subscription plans move up from their original cost to higher-cost plans.

Wrapping up

Every owner and investor should focus on monthly recurring revenue as a critical metric. Calculating your MRR is the quickest way to understand if your company is progressing or not. In case there is a downfall, you may have to update some strategies accordingly. It is one of the best ways to get insights into a subscription-based or SaaS business. 

MRR can tell you where the business is heading and the necessary steps one may need to take.