Monthly Recurring Revenue

Monthly Recurring Revenue (MRR) is a key financial metric for businesses that operate on a subscription-based model, like Software as a Service (SaaS) companies. It calculates the predictable revenue a company can expect to receive every month.

MRR is particularly beneficial because it helps create more accurate forecasts and allows a company to measure growth or decline more precisely.

To calculate MRR, you add up the recurring revenue from all customers for one month. For example, if a company has 10 customers who pay $10 per month and 20 customers who pay $20 per month, the MRR would be:

MRR = (10 customers * $10) + (20 customers * $20) = $100 + $400 = $500.

There are several types of MRR:

1. New MRR: Revenue generated from new customers acquired during a specific month.
2. Expansion MRR: Additional revenue from existing customers through upselling or cross-selling.
3. Churned MRR: Lost revenue from customers who cancelled or downgraded their subscription.
4. Net New MRR: The sum of New and Expansion MRR minus Churned MRR.

Understanding these metrics allows businesses to better understand their growth and profitability and make informed business decisions.