Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is a metric used by subscription-based businesses to track and measure their predictable, recurring revenue streams on a monthly basis.
What is Monthly Recurring Revenue (MRR) and how to calculate it?
Monthly recurring revenue (MRR) is the predictable revenue generated each month from subscription-based services. Whereas annual recurring revenue (ARR) measures annualized recurring revenue, MRR provides a more granular view by looking at it on a monthly basis. MRR is calculated by summing up all subscription fees for a month. MRR provides insights into the stability and growth potential of a business, making it a critical metric for subscription-based companies.
Tracking MRR helps businesses understand their revenue trends, forecast future earnings and make strategic decisions about pricing and customer acquisition. Consistent MRR growth indicates a healthy business with reliable income streams. By focusing on increasing MRR, companies can ensure long-term financial stability and growth.
How to calculate the monthly recurring revenue (MRR)?
Step 1: List all your subscriptions
Start with a list of all your active subscriptions and look at the subscription amount (total contract value) for each subscription.
Step 2: Calculate the MRR for each subscription
For each subscription, divide the subscription amount (total contract value) by the duration of subscription (in months). This will give you the MRR for each individual subscription.
Step 3: Calculate the total MRR
Then, sum the MRR for each subscription to get the total MRR.
Example:
- Subscription A: $48,000 Contract with a 24-month duration = $2,000 MRR
- Subscription B: $12,000 Contract with a 12-month duration = $1,000 MRR
- Subscription C: $ 1,500 Contract with a 3-month duration = $500 MRR
Total MRR = $2,000 + $1,000 + $500 = $3,500
Follow this method to accurately and easily calculate your business's MRR and get a clear picture of your recurring revenue stream.
