What is the MRR Metric?
The Monthly Recurring Revenue (MRR) metric represents the total predictable revenue that your business expects to receive from active subscriptions on a monthly basis. It reflects net MRR growth, which accounts for new, canceled, upgraded, and downgraded subscriptions. This metric provides a clear view of your subscription business's financial health and growth trajectory.
You can find it in the Cleeng Dashboard under Analytics.
How is it Calculated?
The formula for calculating MRR is:
MRR = Existing Recurring Revenue + Net MRR Growth
- Existing Recurring Revenue: The total recurring revenue from all active subscriptions at the beginning of the month.
- Net MRR Growth: The sum of new MRR (from new subscriptions), expansion MRR (from upgrades), contraction MRR (from downgrades), and churned MRR (from canceled subscriptions).
- Note: Annual subscription revenue is normalized by dividing by 12 to reflect the monthly equivalent.
Example:
Let's say a company has the following data for a given month:
- Existing Recurring Revenue (at the start of the month): $100,000
- New MRR (from new subscriptions): $15,000
- Expansion MRR (from upgrades): $5,000
- Contraction MRR (from downgrades): -$3,000
- Churned MRR (from canceled subscriptions): -$7,000
MRR = $100,000 + ($15,000 + $5,000 - $3,000 - $7,000) = $110,000
Therefore, the company's MRR for that month is $110,000.
How to Use the MRR Metric in a Subscription Business
The MRR metric is a foundational metric for subscription businesses. You can use it to:
- Track Business Growth: Monitor MRR trends over time to assess the overall growth and stability of your subscription base.
- Forecast Revenue: Use MRR to predict future revenue and plan for resource allocation and business expansion.
- Evaluate Subscription Performance: Analyze MRR changes to understand the impact of new features, pricing adjustments, and marketing campaigns.
- Assess Customer Retention: Observe the impact of churn on MRR to gauge the effectiveness of customer retention strategies.
FAQs
Why is MRR important for subscription businesses?
MRR provides a consistent and predictable view of revenue, which is essential for financial planning, forecasting, and assessing business health in a subscription-based model.
What is the difference between MRR and total revenue?
MRR focuses specifically on recurring revenue from subscriptions, while total revenue may include one-time purchases, services, or other non-subscription income.
What are the components of Net MRR Growth?
The components are new MRR (from new subscriptions), expansion MRR (from upgrades), contraction MRR (from downgrades), and churned MRR (from canceled subscriptions).