"Don’t underestimate the value of financial data, especially in the SaaS world. SaaS metrics are your best source of intelligence when it comes to the health of your business and how it’s performing. Real-time financial data equips you with the insight you need to confidently drive performance."
Tyler Eyamie, CEO, Fusebill
What is Monthly Recurring Revenue (MRR)?
Monthly Recurring Revenue (MRR) is the measure of money that is paid monthly for a subscription of a product or service.
Monthly Recurring Revenue as a core operating metric and probably the most important SaaS metric of all. Monthly Recurring Revenue is a measure of the predictable and revenue generated by customers. It provides valuable insight into sales and cash flow dynamics.
MRR is a good overall measurement of your businesses financial health. In particular, MRR can be used to figure out:
New business MRR
The MRR is counted at the moment a lead converts to a paid customer.
An increase to the MRR of an existing customer, e.g. upgrade to higher plan, discount expiration, 2nd subscription, increase in quantity.
A decrease in MRR, e.g. downgrade to lower plan, adding discounts, decrease in quantity.
The MRR reduction caused by a customer cancelation or failure to renew their subscription.
The MRR from a previously churned customer moving back into a paid plan.
It’s important to note MRR is not recognized revenue and is calculated very differently. It’s up to your organization to define the rules for calculating the components. A highly flexible subscription billing and management platform can certainly help with that.
The basic formula for MRR is simple: for any given month, we sum up the recurring revenue generated by that month's customers to arrive at your MRR figure.
MRR = Average product price per unit X the number of customers
When another customer is gained MRR increases as a result. If we have a good handle on customer acquisition and churn rates, we can even use that to extrapolate to the future, and predict future MRR.
Though the basic formula for MRR is simple, there are things to include or exclude in the calculation.
THINGS TO INCLUDE IN YOUR MRR CALCULATION:
Things to exclude: