Monthly Recurring Revenue, commonly abbreviated as “MRR” is all of your recurring revenue normalized into a monthly amount. It’s a metric usually used among subscription and SaaS companies.
MRR looks at all of your various pricing plans and billing periods and consolidates them into a single number that you can track the trend of over the life of your business.
While MRR is a highly valuable metric, it is not an accounting metric and shouldn’t be used for that. When you have a mix of billing intervals (weekly, monthly, quarterly, annual) they all get normalized into a single “monthly” figure and so the figure can be misleading when it comes to how much money you’re actually bringing in.
We find that the trend is more important than the number itself.
How to calculate MRR
Calculating monthly recurring revenue on a high level is straight forward.
MRR = # of customers * average billed amount
So 10 customers paying you an average of $100 per month would mean an MRR of $1,000.
10 customers & $100/mo = $1,000 MRR
How do you calculate how much new monthly recurring revenue you’ve got?
As your business grows, it will become important to track not only your top-level MRR but also what factors make up the change in your MRR over previous months.
If you added $1,000 in new MRR, you’d want to know where that came from, right?
Lucky for you, that also is relatively easy using 3 elements that make up what we’ll call “Net New MRR“.
- New MRR — Additional MRR from new customers
- Expansion MRR — Additional MRR from existing customers (also known as an “upgrade”)
- Churned MRR — MRR lost from cancellations or downgrades
Net New MRR = New MRR + Expansion MRR - Churned MRR
If you churn more MRR than you get from New or Expansion MRR, you end up losing MRR that month…which would make you sad. Very, very sad.
