What is MRR?

What is MRR? - featured image

A Monthly Recurring Revenue (MRR) report is a financial metric that shows how much revenue a company can expect to receive each month from customers for their products or services. MRR is a key metric for subscription-based businesses because it can help them: 

  • Forecast future revenue 
  • Identify growth trends 
  • Make strategic decisions 
  • Understand their revenue stream 
  • Plan for future growth 
  • Make more informed decisions around other business costs 

MRR includes recurring charges from discounts, coupons, and recurring add-ons, but excludes one-time fees. It can also provide insight into how many customers subscribe to a company's services and how long they are likely to stay. This can help businesses predict or give a heads-up on customer churn or churn rate, which is the rate at which customers cancel their subscriptions. Reducing churn is one of the most effective ways to increase MRR, and can be achieved by improving customer service and regularly updating and improving the product.

Types of MRR

MRR has variations depending on the insights you're after

  • New MRR: Revenue generated from acquiring new customers.
  • Net New MRR: The overall change in MRR compared to the previous month, considering new customers, expansions, and churn.
  • Expansion MRR: Increased revenue from existing customers through upsells, cross-sells, or add-ons.
  • Upgrade MRR: Revenue from existing customers moving to higher-priced subscription plans.
  • Downgrade MRR: Revenue lost from customers moving to lower-priced subscription plans.
  • Reactivation MRR: Revenue recovered from previously churned customers who resubscribe.
  • Churn MRR: Revenue lost due to customer cancellations.

Common Mistakes When Calculating MRR

MRR is a crucial metric for subscription-based businesses, so entrepreneurs must be aware of common calculation errors.

Mistake 1: Overvaluing Long-Term Contracts
Even if customers pay upfront for quarterly, semi-annual, or annual contracts, their MRR value should be divided by the contract length. MRR measures growth rate, not cash flow. Including full contract values skews other metrics like churn rate and customer lifetime value.

Mistake 2: Ignoring Transaction Fees and Delinquent Charges
Subtracting transaction fees and delinquent charges from MRR is incorrect. Delinquent charges should be tracked separately to measure revenue loss. Including transaction fees hides optimization opportunities.

Mistake 3: Including One-Time Payments
One-time payments are not recurring revenue and should be excluded from MRR calculations.

Mistake 4: Inaccurate Trial Inclusion
Counting trials as revenue before conversion inflates metrics and misrepresents growth.

Mistake 5: Omitting Discounts
Discounts should be reflected in MRR calculations to accurately represent the actual revenue generated.

In conclusion

There's much more to explore in the world of MRR and SaaS metrics. Remember, in the SaaS game, momentum is key, and subscriptions are the ultimate focus.

In the meantime, check out Capitara, which helps you visualize your MRR waterfall and accelerate your SaaS growth today.

Related posts