MRR stands for Monthly Recurring Revenue. It’s a key metric used by businesses with subscription-based or recurring revenue models, such as SaaS (Software as a Service) companies.
Here’s a breakdown:
- Predictable Income: MRR represents the predictable and consistent revenue a business expects to receive every month from its active subscriptions.
- Monthly Normalization: It normalizes all recurring revenue, regardless of billing cycles (monthly, quarterly, annual), into a monthly figure.
- Financial Health Indicator: MRR provides a clear picture of a company’s financial health and growth trajectory.
Why is MRR important?
- Forecasting: It helps businesses forecast future revenue and make informed financial decisions.
- Growth Tracking: It allows businesses to track their growth over time and identify trends.
- Investor Attraction: Investors often use MRR to evaluate the health and potential of subscription-based businesses.
How to calculate MRR:
There are a couple of ways to calculate MRR:
- Simple Calculation: Multiply the number of paying customers by the average revenue per user (ARPU).
MRR = Number of Customers x ARPU
- Sum of all monthly subscriptions: Add up the monthly revenue from all active subscriptions.
Example:
Let’s say a company has:
- 100 customers on a $10/month plan
- 50 customers on a $20/month plan
The MRR would be:
- (100 customers x $10) + (50 customers x $20) = $1000 + $1000 = $2000
Key things to note about MRR:
- It excludes one-time payments, such as setup fees or professional services.
- It includes recurring charges from add-ons, upgrades, and discounts.
- It’s different from ARR (Annual Recurring Revenue), which is the annualized version of MRR.
In summary, MRR is a crucial metric for subscription-based businesses to track their recurring revenue, forecast future income, and demonstrate their financial health to investors.
Vast Technology 