MRR is short for Monthly Recurring Revenue and is the effective monthly revenue from all active recurring subscriptions under the account. MRR is also one of the most important SaaS metrics and KPIs.
- Example: A $10/monthly plan = $10MRR and a $120/year plan = $10MRR
If you’re running a subscription based business, it is arguably the most important metric to monitor because not only does it give you a baseline (this month’s recurring revenue should indicate next month’s recurring revenue unless you add a customer or lose a customer), it also helps you to normalize annual charges.
Changes in MRR are an indicator of the health of your business. Charting it helps you to see right away if this month was better than last month, recognize month over month trends in order to compare customer satisfaction, and once your baseline is established, help you answer forecasting questions like how much new business you need to bring in to meet projections or your sales quota.
When measuring MRR, focus on customers that are moving forward with you rather than the ones that aren’t paying as well as what’s going to be coming in month after month. This means excluding canceled and non-paying customers, and one-time charges like setup fees, support and professional service charges, etc. If your service includes usage charges, only include those that are repeatable (like user licenses).
We encourage you to segment your customer base and look at the MRR by the different segments. This can help you to identify customer characteristics that are correlated with strong revenue and lower cost of support and service, respectively. For example, look at customers that are actively using the service vs. those who might just be paying for it and not using it. Your passive (or less engaged) customers are higher risk because they are more likely to churn and drop away. Company size, sector, customer type (B2B, B2C, B2B2C), and use case are other common ways to segment your customer base.
If you‘d like more information on how Monthly Recurring Revenue (MRR) and other key metrics subscription businesses should monitor, view our 4 Key Metrics for Your Subscription Based Business.