MRR

Monthly Recurring Revenue (MRR) is a critical metric used by subscription-based businesses to calculate the recurring revenue generated every month from customers’ subscriptions. MRR is a crucial business metric that can help companies track their revenue growth and forecast future revenue streams accurately.

What is MRR?

MRR is the total revenue generated every month by a business through its subscription-based products or services. It is a fundamental metric for SaaS (Software as a Service) businesses that rely on recurring subscriptions for revenue. MRR includes all recurring charges billed to customers, such as monthly subscriptions, annual subscriptions, add-ons, or upgrades.

How to Calculate MRR?

The formula to calculate MRR is relatively simple. Businesses can use the following formula to calculate MRR:

MRR = Total Number of Subscribers x Average Revenue Per User (ARPU)

Here’s an example of how to calculate MRR:

Let’s assume that a SaaS business has 500 subscribers and the average revenue per user is $50. The MRR for this business would be:

MRR = 500 x $50 = $25,000

In this case, the MRR for the business is $25,000 per month.

MRR vs. ARR: What’s the Difference?

Annual Recurring Revenue (ARR) is the total revenue a business generates from its subscription-based products or services annually. ARR is calculated by multiplying the MRR by 12 months. The primary difference between MRR and ARR is the time frame.

• MRR calculates the monthly recurring revenue generated by a business.
• ARR calculates the annual recurring revenue generated by a business.

Why MRR Matters?

MRR is a critical business metric for subscription-based businesses for the following reasons:

• Predictability: MRR allows businesses to predict future revenue streams accurately, providing a more stable financial footing.
• Growth: MRR helps businesses track their revenue growth over time. This allows businesses to see whether their revenue is increasing, decreasing, or stagnating, and identify potential areas for growth.
• Churn: MRR helps businesses track customer churn, which is the rate at which customers cancel their subscriptions. By monitoring customer churn, businesses can identify areas for improvement, such as product quality, customer service, or pricing.
• Valuation: Investors use MRR to value subscription-based businesses. The higher the MRR, the higher the valuation of the business.
• Decision Making: MRR helps businesses make data-driven decisions, such as determining pricing strategy, expansion, or resource allocation.

MRR Growth: How to Increase MRR?

Increasing MRR is a top priority for subscription-based businesses. Here are some tips on how to increase MRR:

• Upselling and Cross-selling: Encourage customers to purchase add-ons, upgrades, or premium services.
• New Product Features: Introduce new product features that customers will be willing to pay for.
• Price Optimization: Experiment with different pricing strategies to find the optimal pricing point.
• Reduce Churn: By reducing churn, businesses can retain more customers and increase their MRR.

Conclusion

MRR is a crucial business metric for subscription-based businesses. It allows businesses to track revenue growth, predict future revenue streams, and make data-driven decisions. By focusing on monthly recurring revenue growth, businesses can increase their revenue and valuation, making it a top priority for any subscription-based business.