As a SaaS business, you most likely use the recurring subscriptions revenue model.
Essentially, this means that your business’ success depends on the amount of recurring revenue that your company generates from subscriptions every month.
Truth is, it’s nearly impossible to know where your business stands financially without tracking your monthly recurring revenue (MRR), which makes it one of the most critical metrics for SaaS businesses.
So, in this guide, we will cover everything you need to know about monthly recurring revenue (MRR), including:
- What Is Monthly Recurring Revenue (MRR)?
- How to Calculate MRR?
- What’s the Difference Between MRR and ARR?
- How to Grow MRR
- Why Is MRR an Important SaaS Metric?
- 15 Examples of MRR for Real Companies
- Monthly Recurring Revenue FAQ
What Is Monthly Recurring Revenue (MRR)?
Monthly Recurring Revenue (MRR) is a SaaS metric that measures the amount of revenue subscription-based companies can expect to generate each month.
Besides allowing you to evaluate your business’ current financial health, MRR also helps you keep track of your business’ financial growth and project future revenue growth from active subscriptions.
As such, calculating the MRR is essential for any business that uses the recurring subscription revenue model.
Different Types of MRR
Simply put, calculating your MRR allows you to see your customers’ subscription behavior and its effects on your revenue.
For example, an increase in MRR may indicate that more customers are upgrading their subscription plans. Alternatively, MRR growth might signal that your customer acquisition efforts are paying off.
A decrease in MRR, on the other hand, might indicate increased plan cancellations, downgrades, or customer churn.
To find out the specific reasons behind the changes in your MRR, you need to break down your MRR into specific types, including:
- New MRR calculates the revenue new customers brought to your company during the month.
- Net new MRR allows you to see the changes in revenue from one month to another.
- Upgrade MRR refers to the revenue your company generated from customers that upgraded their subscription plan to a more expensive plan during the month.
- Expansion MRR measures how much additional revenue you’ve made from existing customers in a month compared to the previous month.
- Downgrade MRR calculates the amount of revenue you lost from customers that downgraded their existing subscription plan to a cheaper one.
- Churn MRR estimates the amount of monthly revenue lost from canceled subscriptions.
- Contraction MRR shows you how much revenue your company lost from subscription downgrades and cancellations in a given month.
- Reactivation MRR calculates the revenue your company made in a month from previously churned customers that returned to a paid subscription plan.
How to Calculate MRR?
Calculating your MRR correctly is essential for your business, so you want to include all recurring fees in your calculations and exclude any one-time fees. Otherwise, you may underestimate or overestimate your business’ growth and financial health.
Not to mention, investors put a lot of emphasis on your MRR, so an incorrectly calculated MRR can mislead them. And, if worse comes to worst, it can prevent you from closing deals with investors.
With the right formula, however, calculating your MRR is easy – all you have to do is multiply your average revenue per user (ARPU) by the number of your monthly customers.
That said, the formula can slightly differ based on the type of subscription plans you offer. So, let’s take a look at two foolproof formulas that will help you calculate your MRR the right way.
Monthly Recurring Revenue Formula
So, here’s a formula you can use to calculate your MRR for customers under a monthly subscription plan:
Monthly Recurring Revenue (MRR) = Average Revenue Per User (ARPU) x total number of customers using a monthly subscription plan
For example, if your ARPU is $50 and you have 300 monthly customers, your MRR would be $50 x 300 = $15,000.
And, to calculate your MRR for customers under an annual subscription plan, simply use this formula:
Monthly Recurring Revenue (MRR) = (annual subscription plan price / 12 months) x total number of customers using an annual subscription plan
So, if you have 400 customers using an annual subscription plan that costs $300 per year, your MRR would be ($300 / 12 months) x 400 = $10,000.
What’s the Difference Between MRR and ARR?
As the names suggest, both monthly recurring revenue (MRR) and annual recurring revenue (ARR) are metrics that calculate your recurring revenue.
The main difference between them is the calculation period.
MRR calculates the recurring revenue your company generates in a given month, while ARR calculates your recurring revenue over the course of a year.
In other words, MRR represents your company’s recurring revenue on a micro-scale, whereas ARR estimates it on a macro scale.
Why You Should Calculate Both MRR and ARR
Both MRR and ARR allow you to track your recurring revenue growth and get insight into your business’ financial health. As such, your best option is to calculate both.
Essentially, MRR helps you monitor your business’ growth month-over-month. This makes MRR especially useful for estimating the immediate effects your business decisions (e.g. pricing strategy changes) might have on your revenue.
ARR, on the other hand, allows you to track your business’ growth year-over-year, which can help you make long-term business decisions and strategically plan your product positioning.
As a result, calculating both your monthly and annual recurring revenue can help you keep better track of your business’ growth and make informed business decisions.
How to Grow Your MRR
In short, MRR growth shows that:
- Your business is generating more revenue each month
- You’re making the right business decisions
- Your marketing and sales efforts are paying off
- Your customers are satisfied with your product and services
- Your business is consistently growing
As such, MRR growth is vital to any SaaS business – and yet, growing your MRR isn’t always easy.
Before we look at the ways you can speed up your MRR growth, it’s important to make sure that your MRR calculations are correct.
If you don’t calculate your MRR correctly, you’ll get inaccurate figures. In some cases (e.g. if you don’t count in recurring add-ons), your MRR might appear lower than it actually is.
Once you’re sure your MRR calculations are correct, consider the following tips to improve your monthly recurring revenue growth:
- Adjust your pricing. As a SaaS company, you likely sell solutions that help people save time, money, or increase their earnings. As such, you want your product prices to match their value. This way, you can prevent underselling your products and grow your MRR.
- Offer more pricing plans. You can effectively boost your MRR growth by giving your customers more options.
- Upsell your existing customers. Existing customers are 14 times more likely to buy your product than new customers, so you can easily increase your MRR by encouraging your current customers to upgrade their subscription plans or buy useful add-ons.
- Remove your free subscription plan. Instead of offering a free subscription plan to your customers, consider offering a free trial of your product. This way, your customers might be more inclined to buy your product after the trial, which can increase your MRR.
- Improve your products. Continuously improving your product will help you retain customers and attract new ones, which can help you grow your MRR.
Why Is MRR an Important SaaS Metric?
Monthly recurring revenue is hands down one of the most important SaaS finance metrics for businesses that use the recurring revenue model, and here’s why:
#1. Measure Business Growth
Calculating your MRR month-over-month is critical for tracking your business’ growth.
Simply put, comparing your current MRR to that of the previous month allows you to see whether (and how fast) your business is growing.
This can also help you determine which growth stage your business is currently at, as well as the changes you need to make to boost your business’ growth.
While it’s not unlikely to experience MRR dips from time to time, a continuously decreasing MRR is a solid indicator that you need to make some business changes.
On top of that, tracking your MRR is also important if you’re looking for additional funding through new investors or VC funding, as they’re much more likely to invest in companies that have a stable or growing MRR.
#2. Make Financial Projections
However, you can also accurately forecast your future revenue by calculating and tracking your monthly recurring revenue.
The key to making accurate financial projections with your MRR is to calculate it consistently. By gathering months of data, you’ll be able to estimate where your business will stand financially months down the road.
Not to mention, regularly calculating your MRR also allows you to spot trends, such as seasonality, which can help you plan ahead.
#3. Plan Your Budget
Tracking your MRR alongside your expenses can help you make strategic financial decisions and better plan your budget.
Generally speaking, your MRR estimates how much revenue your company generates each month. By comparing this number with your monthly expenses, you can see how much money you can reinvest into your business to improve its growth.
On top of that, breaking down your MRR can help you determine the areas that need more funding than others.
For example, if your new MRR has dropped although your MRR has increased compared to the previous month, it might mean that while your current customers are satisfied with your product, you are missing out on new customers. In this situation, you might want to consider spending more on customer acquisition.
Now, let’s say your MRR has decreased since the last month, while your new MRR is on the rise alongside your churn MRR. This might mean that although you’re attracting more new customers, your existing customers aren’t satisfied with your product. Eventually, this might lead to you losing customers as soon as you acquire them.
In this case, you might want to first analyze the reasons behind customer churn. Once you know why your customers are leaving, you’ll want to allocate more of your budget to improving your product and increasing customer retention.
In short, tracking your MRR and breaking it down by type can help you make better financial decisions.
#4. Track Your Business’ Performance
With the recurring revenue model, your business receives revenue in small amounts each month instead of making one-time sales.
For this reason, calculating your monthly recurring revenue makes the most sense if you’re looking to track your business’ performance.
Essentially, monitoring your recurring revenue every month allows you to easily determine whether your business is steadily progressing towards its yearly financial goals.
#5. Improve Your Sales
Tracking your MRR from month to month can also help you make more sales.
Put simply, calculating your MRR can quickly help you see the effectiveness of business changes you’ve made. This allows you to adjust and optimize your sales and marketing strategies to increase your revenue.
If, for example, your MRR has suddenly dropped, you might want to take a closer look at any recent changes you’ve implemented to your sales, marketing, or pricing strategies.
A sudden decrease in MRR might indicate that they’re doing more harm than good, so you might want to reconsider your strategy.
On top of that, you can also use MRR to determine which subscription plans bring the most revenue, and focus your marketing and sales efforts on them to increase your sales.
15 Examples of MRR for Real Companies
If you’re interested to learn how much companies make in monthly recurring revenue, you can easily do it by dividing their ARR by 12 months.
You should keep in mind, though, that this calculation isn’t entirely accurate because it doesn’t include customer churn, subscription plan upgrades, and downgrades. Nonetheless, it can give you a rough estimate of a company’s monthly recurring revenue.
That said, let’s take a look at 15 MRR examples of real companies:
- Printful makes $150m in ARR, which brings their MRR to around $12.5m.
- 1Password makes $120m in ARR, meaning their MRR is $10m.
- Lucidworks makes $48m in ARR, bringing their MRR to about $4m.
- ClickUp’s ARR is $80m, so their MRR is around $6.7m.
- SecurityScorecard makes $71m in ARR, meaning their MRR is just shy of $6m.
- Squire makes $15m in ARR, bringing their MRR to around $1.2m.
- Cloudbeds makes $30m in ARR, which brings their MRR to $2.5m.
- Gong generates $120m in ARR, so their MRR is around $10m.
- Hopin’s ARR is $100m, meaning their MRR is about $8.3m.
- Outreach receives $158m in ARR, bringing their MRR to just over $13m.
- 247 ai makes $306m in ARR, which means their MRR is $25.5m.
- Freshworks’ ARR is $337.8m, so their MRR is slightly over $28m.
- Numerated generates $26m in ARR, which makes their MRR around $2.1m.
- DesignPicke makes $21.1m in ARR, bringing their MRR to about $1.7m.
- Handshake receives $20m in ARR, meaning their MRR is around $1.6m.
Want to see more MRR examples of real companies? Our SaaS database includes the ARR of 30,000+ other SaaS businesses!
Monthly Recurring Revenue FAQ
#1. What’s the difference between MRR and Revenue?
Monthly recurring revenue (MRR) is a metric that SaaS companies use to estimate how much recurring revenue they earn from subscriptions. This metric helps SaaS businesses track their performance and financial health.
Revenue, on the other hand, refers to the total income your company generates from sales over a period of time – usually 1 year.
Unlike MRR, revenue is important for financial reporting, income statements, and other accounting operations.
Not to mention, while all businesses keep track of their revenue, only subscription-based businesses calculate their MRR.
#2. Why does tracking MRR matter?
Calculating your MRR is important because it helps you to:
- Make informed business decisions.
- See if your business is getting closer to achieving its financial goals.
- Determine your business’ financial health.
- Manage your budget in a way that benefits your business and accelerates its growth.
- Increase your MRR to attract more investors.
- Address the issues that lead to customer churn.
- Plan your business’ financial growth.
#3. What is the legal definition of MRR?
Here’s the legal definition of monthly recurring revenue (MRR) according to Law Insider: “Monthly Recurring Revenue means, for any month as at any date of determination, the sum of the aggregate value of Recurring Revenue for such month taken as a single accounting period under GAAP, minus Recurring Revenue of Borrower that was lost during the month ended as of such date of determination.”
By now, you should have a better understanding of the monthly recurring revenue, its types, and its importance to your SaaS business.
Hopefully, now you’ll be able to calculate your MRR the right way and improve your MRR growth.
Before you go, let’s go over some of the key points mentioned in this article:
- Monthly recurring revenue (MRR) is a metric that SaaS companies use to estimate their expected recurring revenue in a given month.
- Breaking down your MRR into specific types, such as churn MRR and upgrade MRR, can help you determine why your MRR fluctuates from month to month.
- If you offer monthly subscriptions, multiply your ARPU by the total number of customers to find out your MRR.
- To grow your MRR, consider upselling your current customers, removing your free pricing plan (if you have one), and adjusting your product pricing to match their value.
- Consistently calculating your MRR can help you keep track of your business’ growth and performance, improve your financial decisions, and make accurate financial predictions.