What is monthly recurring revenue (MRR)?
Any revenue or income that a business expects to receive monthly counts as Monthly Recurring Revenue (MRR). Recurring revenue is usually the result of a monthly subscription business that bills its customers each month.
How to calculate MRR?
Calculating MRR is a fairly simple process that involves multiplying your total number of paying users by the Average Revenue Per User (ARPU).
Monthly Recurring Revenue Formula:
MRR = Average Monthly Revenue Per Customer x Total Number of Customers
Types of monthly recurring revenue
There are several other types of monthly recurring revenue that help to provide insights about how your monthly revenue is changing:
- New MRR: Monthly recurring revenue from new customers.
- Expansion MRR: Monthly recurring revenue from existing customers (upgrades, add-ons, cross-sells).
- Churned MRR: Monthly recurring revenue lost from customers who cancel/churn.
- Contraction MRR: Monthly recurring revenue lost from existing customers through downgrades.
- Reactivation MRR: Monthly recurring revenue generated by previously churned customers returning to a paid plan.
Why is calculating MRR important?
Monthly recurring revenue tracks month-over-month revenue trends, providing valuable insights into the financial performance of your business. The monthly subscription business model is so popular because it results in a steady cash flow.
Your MRR also helps to forecast the next month’s revenue. This allows you to decide what changes you need to make in your sales efforts in order to increase revenue, and understand what kind of budget you’ll have for growth promotion.
How to grow your MRR
1. Upsell to existing customers
Many subscription businesses have a variety of pricing plans. One way to grow your monthly recurring revenue is by convincing users to upgrade to more expensive monthly plans.
2. Run reactivation campaigns to win back previous customers
Instead of just looking for new customers, you can also attempt to convince past customers (who signed up for your service and then unsubscribed) to start their subscriptions again.
This is an easy-to-implement strategy because you already have the contact details of past customers, which makes it easy to run targeted email campaigns, for example.
3. Reduce churn
Keeping more of your current customers is another great way to ensure your monthly recurring revenue stays healthy.
There are lots of ways to reduce churn, including regularly updating your SaaS product to stay ahead of your competitors and rewarding customers’ loyalty.
4. Get more leads/potential customers
And finally, you can pursue new business in order to promote monthly recurring revenue growth. Make sure you’re constantly evaluating and improving your marketing efforts so that your sales funnel is as efficient as possible.