What is Monthly Recurring Revenue (MRR)

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What is MRR? 🤔

MRR stands for Monthly Recurring Revenue, which tracks the predictable & recurring revenue generated by your product. Although all businesses need to calculate MRR, it is highly relevant for subscription-based products & services.

How to calculate MRR? 📲

Calculating Monthly Recurring Revenue (MRR) is fairly simple if you have access to the following metrics from your product 👇🏼

Number of Active Customers 💁🏼‍♂️

Determine the total number of active customers or subscribers you have at the end of the month.

Monthly Subscription Fees 🤑

Identify the monthly subscription fee for each customer. This is the amount each customer pays on a recurring basis for your product.

Additional Recurring Charges 🐵

If you have any additional recurring charges, such as add-ons or upgrades that customers pay for on a monthly basis, include them as well.

Once you have gathered this information, you can calculate MRR using this formula 👇🏼

✅ MRR = Total Monthly Subscription Fees + Total Additional Recurring Charges

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For example, let's say you have 100 active customers, and each customer pays a monthly subscription fee of $50. In addition, you have $500 in total additional recurring charges for add-ons or upgrades. MRR = (100 customers * $50 monthly subscription fee) + $500 additional recurring charges MRR = $5,000 + $500 MRR = $5,500 Therefore, your Monthly Recurring Revenue (MRR) is $5,500.

What are some mistakes made when calculating MRR? 👀

There are several mistakes that growth operators usually make when trying to calculate MRR 👇🏼

Failing to include all sources of recurring revenue, such as add-ons or upgrades

Not accounting for changes in subscription prices or the number of subscribers over time

Not considering the impact of customer churn or the acquisition of new customers on MRR

Confusing MRR with other metrics, such as ARR (Annual Recurring Revenue) or TCV (Total Contract Value)

What are the different types of MRR?

New MRR 👀

This is the MRR generated from new customers who have signed up for a subscription.

Reactivation MRR ➰

MRR generated from customers who had churned, but have reactivated their subscription from this month

Contraction MRR ☹️

Contraction MRR is the reduction in Monthly Recurring Revenue when existing customers downgrade or reduce their subscription plans.

Expansion MRR 😃

This is the MRR generated from existing customers who have upgraded to a higher-priced subscription or added additional services or features to their existing subscription.

Churn MRR 😢

This is the MRR lost due to customers who have canceled their subscriptions or been downgraded to a lower-priced subscription.

New MRR ➕

New MRR is the sum of new MRR + any new MRR added due to an upgrade in subscriptions

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By the way, we break down business models and write detailed posts on them. Our favorite ones include the Zepto Business Model & Meesho Business Model breakdowns. We also create loaded templates 💪🏼 to make your life as a growth operator easier.

What are some simple ways to increase MRR? 🚀

Increase prices: If you’re confident that your product or service is providing significant value to your customers, increasing prices is a low-hanging fruit to increase MRR.

Offer premium features as an upsell: You can offer additional features or services to customers for an added fee, thereby increasing MRR instantly.

Reduce churn: Customer churn can greatly impact your MRR over the long run. Finding ways to reduce it naturally translates to higher MRR

Acquire new customers: One of the simplest ways to increase MRR without changing much in your product is increasing customer acquisition.

Upsell existing customers: Upselling customers is an incredible way to quickly capture more wallet share from existing customers.

Implement annual billing: By offering customers the option to pay for a year's worth of service upfront, you can increase their MRR and improve cash flow.

Segment pricing: You should segment your customer base and offer different pricing tiers based on usage or feature access. This can help to increase MRR by encouraging customers to purchase plans that exactly fit their use case.

Improve onboarding and customer success: Product onboarding and customer support are probably two of the most unspoken revenue growth levers in any product. Working on them can reduce customer churn and increase customer lifetime value, thus improving your MRR.

Partner with complementary businesses: Find ways to partner with businesses that have a similar audience base, but different use cases. This way you can expand your customer base and increase MRR, by tapping into their user pool & vice versa.

Offer discounts for long-term subscriptions: You can incentivize customers to commit to annual plans by offering discounts and add-ons.

Thanks for reading

P.S: If you loved reading about this growth metric, you will find this list of 23 growth metrics incredibly helpful 💪🏼

What is Monthly Recurring Revenue?