What Does It Mean?
Monthly recurring revenue, or MRR, is a measure of recurring revenue normalized into a monthly amount. MRR is used in subscription businesses as a singular, consolidated, and predictable measure of revenue.
A Profit & Loss Dashboard
Why Does it Matter?
MRR is one of the most important metrics to track for a subscription based business. Understanding MRR gives businesses a baseline monthly income from which they can track growth. Due to the predictable nature of a subscription model, MRR is also used to forecast future revenue. MRR is an indicator of the health of a business, acting as the pulse of the sales engine.
How Do You Measure the KPI’s?
Monthly Recurring Revenue is measured with this formula:
MRR = # of customers * average billed amount
Keep in mind that MRR is not a measure of profit - just a measure of the actual dollar amount coming in to a business monthly.
What Data Sources Would You Use to Measure the KPI?
MRR is tracked where sales and revenue information lives, typically, a CRM like Salesforce, Oracle, or Hubspot. MRR is a key sales metric, and so is often displayed on Product Sales Analysis Dashboards.
Give me an example…
Let’s pretend you are the CEO of an up and coming music subscription service. In the month of June, you have 50 paying customers. 25 of your customers are using a premium plan, paying $12 per month, and 25 are on a basic plan, paying just $8.
To find your MRR you first need to find your average billed amount by customer. In this case:
$12*25 + $8*25 = $500
___________________ = $10/ Average Billed Amount
50 total customers
To find your MRR, you calculate that:
50 customers * $10 = $500 MRR
With the understanding of your revenue, you can set sales projections and quotas for upcoming months, track your customer retention, and altogether measure the health of your revenue stream.
What Benchmarks/Indicators Should I Use?
Within MRR there are several important subsets of data that will help better highlight growth against customer churn. Included here is:
- New MRR — Additional MRR from new customers
- Expansion MRR — Additional MRR from existing customers (also known as an “upgrade”)
- Churned MRR — MRR lost from cancellations or downgrades