(4 min read)
Monthly Recurring Revenue (MRR) is a powerful metric that gives you an accurate picture of the overall financial health of your subscription business. More specifically, it measures the repeatable revenue a subscription business can expect each month and the specific levers driving MRR growth.
What’s included in the MRR calculation?
- All invoiced recurring transactions
- Refunds from active subscribers
- Web and in-app transactions
- Monthly and annual subscriptions
What’s excluded in the MRR calculation?
- Non-recurring transactions
- One time charges like single Live events
- Taxes and VAT
- Coupons and discounts
How is MRR calculated?
MRR is composed of 2 key elements. The “Recurring Revenue” from existing subscribers and the “net MRR growth” which is the net MRR result of new/cancelled subscription, subscription renewals and upgrades/downgrades each month.
MRR = Net MRR Growth + Recurring Revenue
How to grow your MRR?
The first step in growing your MRR is actually taking a step back and reviewing the 6 key levers that directly impact MRR growth. These key drivers include revenue gained through New MRR, recurring revenue, expansion revenue, winback revenue and revenue lost from downgrades and cancellations.
Understanding which of these levers are under-performing provides you with even more tactical information on where to apply your companies efforts along the subscriber journey. To grow MRR consider measuring the results of your strategic actions in the following areas:
- Acquiring more new visitors through target marketing campaigns
- Converting trial users to paying subscribers more efficiently
- Increasing customer retention with engaging experiences
- Upgrading subscribers through with high value offers
- Winning back terminated subscribers with relevant content
The SRM Dashboards lists each step of the subscriber journey within the subscriber retention navigation. Leverage these dashboard to support your MRR growth initiatives.
A Detailed Breakdown of MRR:
The revenue generated after a subscriber starts a new subscription for a given month. By summing the value of all “first” (non-zero) paid transactions for new subscribers in a selected period we arrive to the New MRR. This can be a direct result of your acquisition strategies and a way to help compare the revenue performance between distribution channels or offers.
This is the repeatable revenue a subscriber business can expect on a monthly basis. By summing the value of all recurring transactions after the first (non-zero) paid transaction in a given month we arrive to Recurring Revenue. Recurring Revenue can help the broadcaster compare the revenue performance between offers and distribution channels.
The total revenue generated in a month from a subscriber renewing a subscription. At least 1 non-paid billing cycle between the termination and start date of a new subscription must occur before a subscription is classified as a winback or renewal. The calculated value of Winback MRR excludes any applied discounts or coupons.
The revenue generated when a subscription is upgraded and the overall price of the subscription increases for the subscriber. This is regardless of whether the subscriber moves to a monthly or annual plan. For example, an expansion occurs when a subscriber moves from a basic-to-premium ($10/month to $15/month) subscription plan, when a second subscription is added and changing from a monthly-to-annual ($10/month to $120/year). When calculating the revenue value of the Expansion MRR any applied discounts or coupons are excluded.
The revenue lost when a subscription is downgraded and the overall price of the subscription decreases for the subscriber. This contraction occurs, for example, when a subscriber moves from a premium-to-basic subscription, when a second subscription is removed (but at least one subscription remains) and changing from an annual-to-basic ($15/month to $10/month) subscription plan.
A contraction could also happen when a subscriber switches from a monthly to annual plan if the offer price switches from $15/month to $120/annual ($12/month) . When calculating the lost revenue for Contraction MRR all applied discounts and coupons are excluded.
The amount of MRR that was contributed last month when the subscriber terminated and contributed $0 MRR this month. This reflects the amount of MRR that was lost due to churn. Coupons or discounts do not have any effect on the calculated value of Churn MRR.
Net MRR Growth
The overall growth (or decline) of MRR in a given month is reflected in Net MRR Growth. The net effect of 6 levers directly impacts whether the business will experience revenue growth for a particular month. It is quite useful to observe the performance and trends of each of these levers over time.
Net MRR Growth = New MRR + Winback MRR + Expansion MRR - Contraction MRR - Churn MRR