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.
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.
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.
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.
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).
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.
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.
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