The term MRR stands for Monthly Recurring Revenue and it’s the most critical metric for a subscription-based business, especially for SaaS. Founders, investors or members of the boards take a close look at this metric because it defines the past, present and future of your business health.
The key to any successful SaaS business is to find a way to achieve a growing MRR, so limiting the churn rate (churn is the rate at which your subscriber cancels their subscription) becomes imperative.
In this blog, you will learn the following:
1) What is MRR?
2) How to calculate MRR
3) How to optimize MRR?
4) How to track MRR with Radix
1) What is MRR?
Monthly Recurring Revenue (MRR) is your normalized monthly revenue from all your active subscriptions. To put it simply, it is the revenue your business generates each month out of active subscriptions.
2) How to calculate MRR
Here below you can find a better explanation to understand the MRR concept:
- Let’s say you run a small SaaS called Radix and you want to find out your MRR month over month. The first step is to get the total number of subscriptions collected during the month (from start to finish) and then multiply that amount by the average subscription price.
- MRR = Total Subscriptions x Avg. Subscription Price
- Calculating your growth rate percentage will help you establish your trend. Growth Rate % is calculated based on your monthly MRR variance.
- MRR – Growth Rate % = ( Current Month MRR / Previous Month MRR ) -1
- After calculating your MRR, you can also calculate your Annual Recurring Revenue (ARR), which is simply a projection of how much revenue your business will generate during the running year based on the current month’s MRR.
- ARR = Current Month MRR x 12
- As you can see in the table below, the MRR Growth Rate % from October to November was 5.88%, which equates to an increase of $2,691.This increase is due to new subscriptions or upgrades during that month.
- MRR Growth Rate % from November to December is – 22.84%, and you can see the percentage is negative, meaning that there was no growth during December, the MRR actually decreased by $2,691.
- ARR = Current Month MRR x 12
3) How to optimize MRR?
- Increase your subscription price by adding more value to your product/service. Do not charge more without properly researching your customers’ opinion.
- Upgrade current subscriptions by restructuring your product/service features in different pricing plans.
- Win Back churned customers by sending special offers with full access to your product/service at a lower price. Make sure you solve the problem efficiently so you don’t experience a second churn from those customers.
4) How to track MRR with Radix
- Sign up for free here.
- Connect your Stripe and PayPal accounts in less than five minutes.
- Get access to more than 100 KPIs and 20 smart notifications.
- Get your MRR/ARR/MRR Growth Retention % on the go by downloading our mobile app (App Store and Google Play)
Read More:
How to Forecast MRR: A Super Quick Guide
ARR: What is Annual Recurring Revenue?
Revenue Churn: Definition, How to Calculate, Ways to Track & Improve
