What is Monthly Recurring Revenue (MRR)?
Monthly Recurring Revenue (MRR) is a key metric used by subscription-based businesses to measure the predictable revenue generated each month from active customers. It represents the total income from subscriptions or recurring contracts, excluding one-time payments, upgrades, or discounts.
Why is Monthly Recurring Revenue important?
MRR is important because it provides a clear and consistent measure of a company’s financial health and growth. It helps businesses understand their revenue streams, predict future income, and make informed decisions about scaling, investments, and resource allocation. Tracking MRR also allows companies to monitor changes in revenue due to customer acquisition, churn, or upsells.
How IS Monthly Recurring Revenue Calculated?
MRR is calculated by summing the recurring payments from all active customers for a given month. Here's how it works:
1. Determine Subscription Revenue: Calculate the amount of money each customer pays for their subscription on a monthly basis.
2. Add All Recurring Payments: Sum the monthly payments from all customers who are on a recurring payment plan.
3. Adjust for Upgrades or Downgrades: Include adjustments for any upgrades or downgrades to subscription plans during the month, while excluding one-time fees or non-recurring purchases.
For example, if a company has 10 customers, each paying $100 per month, the MRR would be:
MRR = 10 customers × $100 = $1,000
By tracking MRR, businesses can gauge their revenue stability, forecast growth, and make strategic decisions to increase long-term profitability.
