Monthly Recurring Revenue (MRR) is a vital element of any business that relies on a subscription model, and an incredibly important metric to allow subscription businesses to prosper.
MRR is the revenue that comes in, on a regular basis, from customers subscribing to your product. It offers a regular, reliable revenue stream that removes the need to chase new sales with the same customers time after time.
Rather than concentrating on sales, having a solid understanding of your business’s MRR allows you to devote time and energy to important elements like retaining existing customers.
It costs a lot more money to acquire a new customer than to retain a loyal one.
In fact, some studies suggest acquisition costs can come out as much as 5 times higher.
That’s why MRR makes subscription, and SaaS, organizations such as appealing business models.
Not only does Monthly Recurring Revenue afford greater peace of mind — with reliable, on-going income — it also empowers a business to make more informed decisions around other business costs. If you know you have a solid product, with a loyal returning customer base, you can rely on guaranteed returns.
At a high level, calculating MRR is pretty simple. All you need to do is multiply the number of customers you have signed up by the average billed amount.
As your business grows, you will also need to keep track of the changes in your MRR — or ‘churn’ — by subdividing your MRR into new revenue from new customers, upgraded revenue from existing customers, and lost MRR from downgraded or canceled accounts.
Having a solid understanding of these metrics allows you to decide whether you need to grow your MRR, and where to focus resources.