Monthly Recurring Revenue (MRR) is a financial metric used by SaaS businesses to measure the total estimated monthly revenue generated. MRR is a significant performance indicator as the metric provides insights into a company's growth, stability, and overall financial health.
There are a few types of Monthly Recurring Revenue, meaning MRR. They are:
Now that we already know what MRR is, let’s look at why MRR is important for SaaS businesses.
Growth tracking - MRR helps businesses track their growth over time. The metric reflects changes in the customer base, pricing, and product offerings. Monitoring MRR can help SaaS companies identify trends and make informed business growth decisions.
Retention and churn analysis - MRR provides insights into customer acquisition, retention, and churn. This is critical information for SaaS businesses as it helps the businesses build strategies that help to retain customers and minimize churn. Overall, this information directly impacts business revenue and long-term sustainability.
Benchmarking - MRR allows SaaS companies to benchmark their performance against competitors and industry standards, helping them identify areas of improvement and set realistic goals.
Resource allocation - By understanding MRR trends, SaaS businesses can make better-informed decisions about allocating resources, like sales and marketing efforts, product development, and customer support, to boost revenue growth and customer satisfaction.
Calculate MRR or Monthly Recurring Revenue by multiplying the number of active customers during a given month by the average monthly revenue generated per customer.
MRR = Number of monthly subscriptions x Average Revenue Per User (ARPU)
Note that MRR accounts for recurring revenue only. It means that the calculation should not consider one-time fees or non-recurring charges.