Monthly Recurring Revenue (MRR)

MRR stands for 'Monthly Recurring Revenue'. It is the average monthly revenue your business generates from subscriptions. It tells you how much money in total your customers pay each month to use your SaaS product.

As your MRR grows, the more stable and sustainable your business becomes. As your MRR drops over time due to cancellations or churn (the percentage of customers who stop paying at least once during their subscription period), the more unsustainable your business becomes.

Why does MRR matter?

MRR is often referred to as a key performance indicator (KPI) for a SaaS business. MRR is a key metric for evaluating SaaS businesses, and it provides a good indication of the overall health of your business. When customers are willing to pay for your product month after month it demonstrates that they are getting sufficient value to continue paying their bill.

When the perceived benefit drops below the perceived value, your customers will churn.

MRR is an important metric because it helps you understand how much money your company is making on an ongoing basis. While gross revenue tells you how much revenue has been brought into the company over time (i.e., all sales made), MRR only looks at current sales and thus doesn't include any historical data about past customers who are no longer subscribed but still paid for their original subscription periods before canceling their accounts or switching plans or services altogether.

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How do you calculate MRR?

The MRR formula is calculated by multiplying your monthly subscription price by the number of customers paying that price.

MRR = Number of monthly subscribers x Average revenue per user (ARPU)

For example, if you charge $10 per month, and have 100 paying customers, your average monthly recurring revenue would be $1,000 (100 x $10). In other words, if you don't make any additional sales this month—and every customer continues paying on time—your business will bring in $1,000 over the next 30 days.

​​What are the different types of MRR?

MRR can be measured in different ways based on how the revenue is earned. The 4 most common ways to view monthly recurring revenue are as follows:

• New MRR: represents MRR earned from newly added customers.
• Contraction MRR: represents MRR earned from existing customers that reduced the amount they are spending.
• Churn MRR: represents MRR that has been lost by previously won customers who have since cancelled their contract.
• Expansion MRR: represents MRR earned from existing customers who are now paying you more.

These 4 types of MRR allow a business to analyze how their MRR changes over time and the net effect on a monthly basis, known as Net Revenue Retention (NRR).

​​How do you grow MRR?

The best way to grow your MRR is to build a great product that solves a real customer problem.

SaaS is a fiercely competitive market. Once you build a product that customers love, competitors will see that and copy you. It’s inevitable.

So you’ll have to continue to innovate and improve your product for your customers. The journey never ends. If you’re not growing, you’re dying.

Start by forecasting different MRR scenarios using the Sales Forecast Template. This will help you analyze the effect of your current metrics and how you can change them in the future to achieve your growth goals.