Monthly Recurring Revenue (MRR) is a standardized measure of predictable (recurring) revenue that a business expects to earn monthly. It includes recurring fees, monthly payments resulting from discounts, coupons, and recurring add-ons but does not include one-time expenses.
Monthly Recurring Revenue calculations are mainly used in SaaS and subscription based business models.<\/p>\n\n\n\n
Monthly Recurring Revenue (MRR) is a great way to track how different customer pricing plans and billing periods contribute to the success of a business.<\/p>\n\n\n\n
If businesses calculate and track MRR, they can predict recurring revenue over a certain period and see the overall business behavior.<\/p>\n\n\n\n
MRR can increase or decrease depending on the month.<\/p>\n\n\n\n
New customers represent an increase in MRR, while downgradings and subscription cancelations affect the decrease.<\/p>\n\n\n\n
Downgrading and canceling memberships both result in a reduction of MRR – or lost monthly revenue.<\/p>\n\n\n\n
However, cancellations are far more damaging to the company than downgrades.<\/p>\n\n\n\n
After downgrading, with proper customer care, a customer can upgrade again.<\/p>\n\n\n\n
Once a customer cancels a subscription, and it takes much more effort to bring him back.<\/p>\n\n\n\n
Monthly recurring revenue calculation can give a business a crucial overview of whether the company is growing or not.<\/p>\n\n\n\n
Tracking MRR is important because:<\/p>\n\n\n\n
If subscription based businesses<\/a> want to increase their profits, they should first consider how to grow their MRR.<\/p>\n\n\n\n There are several ways to increase their monthly revenue:<\/p>\n\n\n\n The main benefit of MRR is that it provides predictable revenue insight to businesses of a monthly cash flow.<\/p>\n\n\n\n It gives a better handle on objectives and income so companies can operate their budget easier.<\/p>\n\n\n\n In other words, businesses can approximately predict how much revenue they will acquire throughout a specific period.<\/p>\n\n\n\n Many businesses still work on outdated technology, making monthly recurring revenue calculations hard.<\/p>\n\n\n\n To properly track and analyze MRR, some companies must update their billing software with one that includes a revenue management system<\/a>.<\/p>\n\n\n\n Using a cloud-based billing and revenue management software<\/a> like the one incorporated in Tridens Monetization is the recommended solution in terms of cost and implementation time.<\/p>\n\n\n\n Every business can calculate its MRR relatively easily.<\/p>\n\n\n\n It needs to multiply the number of monthly subscribers by the average revenue per user.<\/p>\n\n\n\n Suppose a company has 200 customers paying $40 monthly for the service.<\/p>\n\n\n\n The monthly recurring revenue (MRR) calculation formula is:<\/p>\n\n\n\n Number of subscribers * Monthly subscription fee = MRR<\/p>\n\n\n\n 200 * $40 = $8000<\/p>\n\n\n\n If a business offers multiple subscription plans, they can calculate each one individually or consider the average billed amount.<\/p>\n\n\n\n For instance, 300 customers paying an average of $20 per month would mean an MRR of $6000.<\/p>\n\n\n\n Number of subscribers * average billed subscription amount = MRR<\/p>\n\n\n\n 300 * $20 = $6000<\/p>\n\n\n\n Although simple to understand and calculate, there are different types of monthly recurring revenue calculations.<\/p>\n\n\n\n As your subscription business expands, it will be critical to measure not only your top-level MRR but also the reasons that contribute to the change in your MRR over previous months.<\/p>\n\n\n\n New customers MRR is the revenue that new customers acquired during the month generate.<\/p>\n\n\n\n If a business has 200 existing customers who pay a $40 fee and 15 new join, the new customers MRR calculation formula is:<\/p>\n\n\n\n Number of new subscribers * Monthly subscription fee = New customers MRR<\/p>\n\n\n\n 15 * $40 = $600<\/p>\n\n\n\n In the month in question, new customers contributed $600 to the total monthly revenue of the company.<\/p>\n\n\n\n In most cases, it is almost impossible to retain all customers.<\/p>\n\n\n\n Reactivation MRR is the monthly recurring revenue from returning previous customers.<\/p>\n\n\n\n Because of this, the reactivation MRR is an incredibly satisfying metric to track.<\/p>\n\n\n\n Basically, it is the revenue gained from previously churned or canceled subscriptions that were reactivated during the month.<\/p>\n\n\n\n To calculate reactivation MRR a business needs to sum MRR from customers previously churned. They had canceled their subscription last month but reactivated it this month.<\/p>\n\n\n\n The total reactivation MRR calculation formula is:<\/p>\n\n\n\n Number of returning subscribers * Monthly subscription fee = Reactivation MRR<\/p>\n\n\n\n 5 * $40 = $200<\/p>\n\n\n\n The returning customers generated $200 in additional revenue for that month.<\/p>\n\n\n\n The expansion MRR rate is a measure that indicates how quickly a company’s monthly recurring revenue (MRR) grows from month to month.<\/p>\n\n\n\n Expansion MRR does not include any revenue from new clients.<\/p>\n\n\n\n Expansion MRR only considers revenue from upgrades, cross-sell, add-ons, and reactivations.<\/p>\n\n\n\n Let’s say a business had an MRR of $8000 at the beginning of the month.<\/p>\n\n\n\n At the end of the month, MRR with expansion was $11.000.<\/p>\n\n\n\n The expansion MRR calculation formula is:<\/p>\n\n\n\n End of the month MRR \u2013 beginning of the month MRR = Expansion MRR<\/p>\n\n\n\n $11.000 – $8000 = $3000<\/p>\n\n\n\n The expansion MRR can also be expressed as the Expansion MRR percentage rate:<\/p>\n\n\n\n [(end of the month \u2013 beginning of the month) \/ beginning of the month] x 100 = Expansion MRR percentage rate<\/p>\n\n\n\n [($11.000 – $8000) \/ $8000] * 100 = 37,5%<\/p>\n\n\n\n Cancellation MRR also called Churn MRR, is the number of customers who choose to cancel a subscription each month.<\/p>\n\n\n\n If a business loses 50 customers who were paying $40 per month, the Churn MRR calculation formula is:<\/p>\n\n\n\n Number of canceled (churned) subscriptions * Monthly subscription fee = Reactivation MRR<\/p>\n\n\n\n 50 * $40 = $2000<\/p>\n\n\n\n In this case, $2000 is the amount of monthly recurring revenue the company lost from customer churn that month.<\/p>\n\n\n\n Downgrade MRR or Contraction MRR represents the monthly revenue that a company loses because of downgrades.<\/p>\n\n\n\n Let’s assume a company offers a basic monthly subscription for $10 and a premium subscription for $40.<\/p>\n\n\n\n If five customers downgrade from premium to the basic $10 plan, the downgrade MRR calculation formula is:<\/p>\n\n\n\n Number of downgraded subscriptions * Difference in subscription fee = Downgrade MRR<\/p>\n\n\n\n 5 * ($40-$10) = 5 * $30 = $150<\/p>\n\n\n\n This month, the company lost $150 from customers’ downgrades.<\/p>\n\n\n\n As the subscription business expands, it is important to measure not only new or churn MRR but also all the factors contributing to the MRR change.<\/p>\n\n\n\n Only when we combine all MRR calculations, can we get an accurate picture of what is happening with our MRR and why.<\/p>\n\n\n\n In order for a company to make informed business decisions, it must look at its Net monthly recurring revenue.<\/p>\n\n\n\n Net monthly recurring revenue is the sum of existing, upgraded, and newly acquired accounts while simultaneously subtracting the value lost from closed or downgraded accounts.<\/p>\n\n\n\n Let’s say the existing MRR is $8000, the new MRR is $2000, the reactivation MRR is $200, the expansion MRR is $500, the churn MRR is $500, and the downgrade MRR is $150.<\/p>\n\n\n\n The net MRR calculation formula is:<\/p>\n\n\n\n New customers MRR + reactivation MRR + expansion MRR – churn MRR – downgrade MRR = Net MRR<\/p>\n\n\n\n $600 + $200+ $3000 – $2000 – $150 = $1650<\/p>\n\n\n\n The Net MRR Growth rate compares the current Net MRR with the Net MRR from the previous month.<\/p>\n\n\n\n With this KPI, the company can monitor if the month-to-month business is successful and in line with its business plans and forecasts.<\/p>\n\n\n\n The Net MRR Growth rate calculation formula is:<\/p>\n\n\n\n [(Current Net MRR – last month’s Net MRR) \/ last month’s Net MRR] x 100 = Net MRR Growth Rate<\/p>\n\n\n\n [$1650 – $1000 \/ $1000] x 100 = 65%<\/p>\n\n\n\n The total Net MRR for this month is $1650, and the Net MRR Growth rate compared to the previous month is 65%.<\/p>\n\n\n\n Gross monthly recurring revenue (MRR) is a business’s total monthly revenue with recurring payments.<\/p>\n\n\n\n It’s a sum of existing revenue at the beginning of the month and Net monthly recurring revenue in that month.<\/p>\n\n\n\n The gross monthly recurring revenue formula is:<\/p>\n\n\n\n Existing MRR + Net MRR = Gross MRR<\/p>\n\n\n\n $8000 + $1450 = $9450<\/p>\n\n\n\n The total Gross MRR for this month is $9450.<\/strong><\/p>\n\n\n\n Sometimes, especially in SaaS business models, some companies may track only ARR, only MRR, or even mix one or another and create confusion.<\/p>\n\n\n\n But ARR is not only MRR multiplied by 12 months.<\/p>\n\n\n\n Annual recurring revenue measures revenue over a year rather than a month, whereas MRR measures recurring revenue generated each month.<\/p>\n\n\n\n ARR is used to forecast annual recurring revenue for the next 12 months, assuming no changes happen to your customer base.<\/p>\n\n\n\n Annual recurring revenue is more appropriate for determining long-term revenue, while MRR helps in short-term evaluation.<\/p>\n\n\n\n For more information, please read our blog on annual recurring revenue<\/a>.<\/p>\n\n\n\n Booking<\/a> is a measure that shows the monetary value of a deal made with a prospective customer for a specific period.<\/p>\n\n\n\n According to the revenue recognition principle<\/a>, a booking is considered the total of all revenue promised to the company.<\/p>\n\n\n\n Bookings represent customers’ commitment to pay for the services or products and don’t necessarily require a contract.<\/p>\n\n\n\n The contract is usually unnecessary since it works on a “promise” principle.<\/p>\n\n\n\n When a customer makes a booking, it’s not considered revenue because no service has been performed yet.<\/p>\n\n\n\n Also, at that moment, the business didn’t collect any money yet, so the contract was just booked, not realized.<\/p>\n\n\n\n MRR, on the other hand, only takes into account signed contracts that ensure the revenue will be collected monthly.<\/p>\n\n\n\n With MRR, one-twelfth is recognized each month throughout a 12-month contract.<\/p>\n\n\n\n\n
Benefits of Monthly Recurring Revenue (MRR)<\/h2>\n\n\n\n
Monthly Recurring Revenue Management<\/h3>\n\n\n\n
How to Simply Calculate Monthly Recurring Revenue (MRR)?<\/h2>\n\n\n\n
How to Calculate different Types of Monthly Recurring Revenue?<\/h2>\n\n\n\n
New Customers MRR<\/h3>\n\n\n\n
Reactivation MRR<\/h3>\n\n\n\n
For example, five customers each had a $40 plan.<\/p>\n\n\n\nExpansion MRR<\/h3>\n\n\n\n
Cancellation or Churn MRR<\/h3>\n\n\n\n
Downgrade (Contraction) MRR<\/h3>\n\n\n\n
Net Monthly Recurring Revenue (MRR) Calculation<\/h2>\n\n\n\n
How to Calculate Net MRR Growth Rate?<\/h3>\n\n\n\n
Gross Monthly Recurring Revenue (MRR)<\/h2>\n\n\n\n
Monthly Recurring Revenue (MRR) vs. Annual Recurring Revenue (ARR)<\/h2>\n\n\n\n
Difference between Booking and MRR<\/h2>\n\n\n\n