Monthly Recurring Revenue is the revenue that keeps repeating month on month for any subscription-based business. This is one of the most important KPIs to track. In most organizations, the top leadership is focused on this value, as MRR forms the foundation of the organizational revenue and stability. It is also a very crucial factor on which the forecasting is done. A stable and strong MRR shows a stable and strong organization.
How to calculate Monthly Recurring Revenue?
The MRR varies from Industry to Industry. For example for a Web hosting industry, that mainly runs on subscription-based model, the MRR can be calculated as below :
Total MRR that month = Total Recurring Revenue + New Recurring Revenue + New Recurring Expansions
Recurring Revenue Churn that month = Recurring Revenue Churn + Recurring Contractions
Also tracking the Net New MRR will give you an understanding of the increase in MRR for that month. That can be calculated as below:
New MRR – Is the new Recurring Revenue got that month.
Expansion MRR – Additional MRR got from the upgrades of existing recurring plans
Churn MRR – MRR that is lost from cancellations + downgrades of existing recurring plans
From the above it is clear that for MRR only the recurring revenue is included, the one-time and metered revenue is excluded. For the organization to have a stable foundation, the Net New MRR should increase. For the Net New MRR to increase the New MRR should go up and the Churn MRR should come down. The organization should roll up the sleeves when the Churn MRR is at an increasing trend and should be treated as an alarm. Though the focus should be on increasing the new MRR, an increase in Churn MRR should be a cause of concern as it will pull down the Net MRR value. And MRR forms the backbone of any organization.