What is Monthly Recurring Revenue (MRR)?

Master the art of calculating Monthly Recurring Revenue (MRR), learn about net and initial MRR, and understand how to calculate repeat revenue.

Monthly Recurring Revenue, commonly known as MRR, refers to the total predictable revenue that a company can count on receiving every month. This key metric is especially crucial for subscription-based businesses. To calculate MRR, you simply sum up the monthly fees paid by all of your subscribers.

Table of Contents

  1. The Intricacies of Net Monthly Recurring Revenue
  2. Deciphering Initial Monthly Recurring Revenue
  3. Calculating Repeat Revenue: A Revenue Jigsaw
  4. Mastering MRR Calculation from Invoices
  5. Monthly Revenue vs. MRR: What's the Difference?
  6. MRR: What’s a Good Rate?

The Intricacies of Net Monthly Recurring Revenue

Net Monthly Recurring Revenue is the MRR, taking into account the gains and losses from existing customers within a given month. It includes new revenue from upgrades or cross-sells, and subtracts losses from downgrades or cancellations, also known as churn. In other words, it gives you a holistic picture of your monthly revenue growth, accounting for changes in your customer base.

Deciphering Initial Monthly Recurring Revenue

Initial Monthly Recurring Revenue is the MRR at the point of acquiring a new customer. For example, if a customer subscribes to a $100 per month plan when they sign up, their initial MRR is $100. This metric helps you understand the average revenue you can expect from a new customer.

Calculating Repeat Revenue: A Revenue Jigsaw

Different from MRR, repeat revenue refers to revenue generated from a 2nd+ purchase. To calculate repeat revenue, you first identify all customers who made at least two purchases within a given period. Then, you add up the total revenue from their subsequent purchases after the first one. This helps you measure the value of customer loyalty to your business.

Mastering MRR Calculation from Invoices

To calculate MRR from invoices, you simply divide the total amount of each invoice by the number of months it covers. For example, if a customer pays $1200 for a year-long subscription, that would contribute $100 to your MRR ($1200 divided by 12 months).

Monthly Revenue vs. MRR: What's the Difference?

While they sound similar, monthly revenue and MRR are different. Monthly revenue includes all revenue received in a month, while MRR specifically measures recurring revenue from subscriptions. A company might have high monthly revenue from a one-off product sale, but the MRR would remain unchanged.

MRR: What’s a Good Rate?

A "good" MRR growth rate can vary widely based on industry, market conditions, and the maturity of the business. However, as a general benchmark, many SaaS (Software as a Service) companies aim for around 15-20% MRR growth per year.

Calculating MRR can seem tricky at first, but it's an invaluable skill for understanding the health and trajectory of your business. So grab those invoices, dust off your calculator, and get to it! You'll be an MRR whiz in no time.