MRR, or Monthly Recurring Revenue, is a metric used by subscription-based businesses to measure the predictable, recurring revenue they generate each month. It helps businesses track their financial health and growth by focusing on the steady income they can count on from their customers.
What is MRR?
MRR represents the total revenue a company expects to earn each month from its subscription services. It excludes one-time payments, such as setup fees or irregular charges, and focuses solely on the recurring revenue from subscriptions.
How to Calculate MRR
Formula for MRR:
MRR = Number of Customers × Average Revenue Per Customer
Types of MRR:
- New MRR: Revenue added from new customers who subscribed during the month.
- Expansion MRR: Revenue added from existing customers who upgraded their subscriptions or purchased additional services.
- Churned MRR: Revenue lost when customers cancel or downgrade their subscriptions.
- Net New MRR: The total change in MRR during the month, calculated as New MRR + Expansion MRR – Churned MRR.
Why MRR Matters
- Predictable Revenue: MRR provides a clear and consistent measure of a company’s revenue flow, making it easier to predict future earnings and plan for growth.
- Growth Tracking: MRR allows companies to track growth over time by comparing month-to-month changes. If MRR is increasing, it indicates that the company is gaining more customers or increasing the value of existing customers.
- Investor Appeal: Investors often look at MRR to assess the financial health and stability of subscription-based businesses. A steady or growing MRR suggests that the company has a reliable source of income.
MRR vs. ARR:
- MRR (Monthly Recurring Revenue): Focuses on monthly recurring income.
- ARR (Annual Recurring Revenue): Is similar but looks at the recurring revenue on an annual basis. ARR is often used for longer-term financial planning, while MRR is used for more immediate month-to-month tracking.
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