MRR | Simple guide to Monthly Recurring Revenue + formulas

MRR or Monthly Recurring Revenue, is a metric that measures the predicted recurring revenue in a month. This metric is particularly useful for SaaS companies and one of the reasons to why subscription businesses are so appealing.

With MRR you don’t have to worry about unpredictable sales and revenue for the forthcoming months. If a subscription business is solidly built it will be able to predict your revenue, and thus growing your business by planning and investing your budget.

What is MRR?

Amounts that counts for the recurring revenue earned includes:
  • recurring subscription amount
  • coupons
  • discounts
  • recurring add-ons
  • Etc.
Below non-recurring revenues are not included in the metric:
  • one time setup fees
  • non-recurring add-ons
  • tax related amounts
  • Etc.
MRR is a genius metric for subscription businesses to thoroughly work with. Due to the recurring revenue business model these types of companies are built upon.

How can MRR grow businesses?

In general MRR disclose the health of a business. As this is an important measure for a potential investor the MRR is really important for a company on the look for investment funding. Therefore, every CEO in a subscription business should strive to grow this metric every month.

The special thing with MRR is its predictive ability. When can result in better budget planning and future investments. If spend correctly this can lead to the company growing

Another benefit is the ongoing relationship between the company and its clients MRR encourages. It creates a monthly natural touch point with the customer, where add ons can be pushed.

Monthly Recurring Revenue formula and components

The simplest form of the MRR formula is as below:

MRR = # of customers * average billed amount

“But my customers are paying different amounts depending on the specific product/service they have subscribed for.” If you reacted like this, we are not surprised. Well, it is the case for many subscription business that customers pay different amounts. If it also counts for your business you can alternatively generate the Average Revenue Per Account, ARPA, using this formula:

ARPA = Total revenue for 1 month / # active customers

When you have the ARPA you can find the MRR by this formula:

MRR = ARPA * Total # customers

However, to get an accurate picture of a company’s revenue, three different aspects of the MRR metric has been developed. This makes the metric even more powerful and able to deep into different parameters of the business. They will be outlined in the following.

New MRR

New MRR is the revenue brought to your business by brand new customers acquired.

New MRR formula:

New MRR = ( # new customers * X billed amount ) + ( # new customers * Y billed amount )

Let’s say your company has acquired 7 new customers paying $100/mo and 3 new customers paying $150/mo. The New MRR for that month would be $1150.

Depending on various amounts billed for that month the formula can be indefinite expanded.

Expansion MRR

Expansion MRR is the number of customers raising their recurring billed amount in a month. This means the revenue from existing customers have expanded.

Expansion MRR can derive either from:

  • Upselling - existing customers upgrading their product
  • Cross-selling - existing customers purchasing additional products/services

Expansion MRR formula:

Expansion MRR = # customers ( Y billed amount - X billed amount ) **

* X billed amount is the original paid amount
* Y billed amount is the new and larger paid amount

Churn MRR

Churn MRR is the opposite of Expansion MRR. Namely the reduced revenue from customers. This can be caused by customers cancelling or downgrading their products/services.

Churn MRR formula:

Churn MRR (negative number) = ( # cancellations * X billed amount ) + ( # downgradings ( X billed amount - Y billed amount ) **

* X billed amount is the original paid amount
* Y billed amount is the new and smaller paid amount

MRR Growth - Net New MRR

The 3 above metrics can analyze your MRR growth if combined.

MRR Growth formula:

MRR Growth = New MRR + Expansion MRR - Churn MRR

This metric will provide you with an overall picture of the revenue your subscription business will generate in a month.


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