What is Monthly Recurring Revenue?

Monthly recurring revenue (MRR) is the amount of revenue you can safely predict will be generated within a specific month. This metric is commonly used by software as a service (SaaS) businesses, as subscriptions are routinely renewed and generate reliable revenue. MRR includes renewal fees but does not include one-time fees.

How to Measure MRR

MRR is more than just the sum of all recurring revenue accumulated at the end of the month. There are multiple factors that affect a company’s MRR, and they all need to be tracked and accounted for to gauge an accurate estimate.

Always break down the different types of recurring transactions that occur every month to get a more accurate breakdown of where revenue is coming from.

• Recurring Renewals: This would account for all existing customers who choose to renew, as per their regular renewal schedule and rate.
• Reactivations: This would account for reactivating past customers who unsubscribed from your services, but then resubscribe later.
• Upgrades: This would account for any add-ons an existing customer purchases, such as switching to a higher tier level or adding additional users to their subscription package.
• Churn: This would account for revenue lost due to customers canceling their subscriptions.
• New Subscriptions: This would account for brand new customers who have purchased a subscription.

When calculating MRR all of the above must be taken into account, as well as the length of contracts. Customer contracts will not follow a calendar or fiscal year, so you need to figure out where their start and end dates are when calculating accurate MRR.

Why is MRR Important?

Tracking MRR is important because it provides valuable insight regarding company performance. If a sales team has specific revenue KPIs they need to hit within a given period, their average MRR will show if they are on track to hit their goals or not.

At an absolute minimum, MRR should stay stagnant. Ideally, you want to see it grow, but if numbers start to slide and performance is lower than it should be, that’s a clear sign there are issues that need to be addressed immediately. Consistent renewals show customers are happy with the product; on the flip side, cancellations mean something isn’t working.

Always Look at the Trends

When you break down MRR and look at different groups of data (renewals vs. churn vs. upgrades) you will begin to see different trends. Certain months may see more growth or decline, or revenue from add-ons could be surpassing recurring renewals.

Pay attention to these details and use them to your advantage. If add-ons are becoming more popular, find out why and have your sales team push for more upsells. There might be a new unique selling point emerging that can be capitalized on.

How to Increase MRR

Every sales team should work to increase their MRR. Some tactics can be utilized by sales reps, whereas others will need to come down the pipeline from upper management.

• Increase sales prospecting. The most obvious answer is to grow your customer base, but that’s not always the fastest route to success. Regardless, active sales prospecting is key and will result in more revenue. This is especially important to help balance monthly churn from canceled subscriptions.
• Upsell where possible. If your subscription has different tiers, try to upsell a customer. Explain the benefits of paying for more services and lean on the relationship you’ve built to foster more trust while engaging in these conversations. It’s often easier to generate more revenue from existing clients.
• Increase subscription prices. This is especially important in competitive markets. You don’t want to undersell your product but being more expensive than competitors is also risky. Strike a healthy, realistic balance when it comes to pricing.