Monthly Recurring Revenue or MRR is one of the most critical metrics and KPIs for SaaS businesses. It is the lifeblood that makes building a SaaS business so appealing.
MRR is the predictable total revenue that a company expects to receive from all its active recurring subscriptions monthly for providing them with goods and services. Essentially, MRR takes into account a company’s normalized monthly revenue. Revenue normalization is a critical business accounting strategy for companies that offer monthly, quarterly, and yearly pricing plans for their products and services.
MRR is most commonly monitored by SaaS companies that generate revenues using the subscription-based model to give them a baseline.
How is MRR calculated?
MRR is calculated by multiplying the number of subscribers under a monthly plan by the average revenue per user (ARPU).
For example, if you have 10 subscribers on the $500/month plan. The MRR will be $ 5,000.
Types of MRR
There are 4 types of MRR, each offering distinct insights into revenue, business health, and customer behavior.
New MRR - Additional revenue generated from the new customers in a month.
- Upgrade MRR - Additional revenue generated from customers who have switched from existing to higher pricing plans in a month.
- Downgrade MRR - Reduced revenue from customers who switched from an existing pricing plan to a lower one in a month.
- Expansion MRR - Additional revenue generated from existing customers in a given month compared to the previous month.