MRR - Monthly Recurring Revenue

MRR stands for Monthly Recurring Revenue, a key metric in subscription-based businesses that represents the revenue generated on a monthly basis from subscriptions. MRR is crucial for measuring the stability and growth of a business's revenue. Specifically, it serves the following purposes:

Revenue Forecasting:

MRR helps in forecasting future revenue. By calculating the regular monthly income, businesses can create more accurate business plans and manage cash flow more effectively.

Growth Measurement:

Tracking the increase or decrease in MRR allows businesses to understand trends in growth or contraction. Factors such as new customer acquisition, revenue increase from upselling to existing customers, and revenue decrease from churn all impact MRR.

Customer Value Assessment:

MRR enables businesses to evaluate how much revenue each customer contributes. This information is useful for refining marketing and sales strategies.

Investor Reporting:

MRR is an important metric for demonstrating business health and growth to investors. A stable MRR helps build investor confidence.

Calculating MRR

MRR is calculated as follows: MRR=∑(Monthly Subscription Fee per Customer)\text{MRR} = \sum (\text{Monthly Subscription Fee per Customer})MRR=∑(Monthly Subscription Fee per Customer)

For example, if 10 customers each subscribe to a service at $1,000 per month, the MRR would be: MRR=10×1,000=10,000USD\text{MRR} = 10 \times 1,000 = 10,000 \text{ USD}MRR=10×1,000=10,000 USD

Types of MRR

  • New MRR:

    • Revenue from new customers.

  • Expansion MRR:

    • Revenue from additional purchases or upgrades by existing customers.

  • Churned MRR:

    • Revenue lost due to cancellations.

  • Net New MRR:

    • Calculated as New MRR + Expansion MRR - Churned MRR.

By managing these various components of MRR, subscription businesses can maintain health and drive growth.