MRR (Monthly Recurring Revenue) is the main indicator for SaaS (Software as a Service) and subscription-based businesses. It reflects the amount of income that the business receives every month from customers who pay for their subscriptions. It can be calculated as:
MRR = Total Number of Subscriptions × Average MRR per Subscription
To understand the meaning of MRR, let’s go back to our pizzeria. Let’s say that you sell a pizza with 10 slices for $10 and someone buys it every day. Now, when they come in and order that same pizza with 10 slices for $10, is the MRR still $10?
The answer is no. The MRR would be $10 if they only ordered one pizza, but since they’re ordering it every day, the MRR is actually $30 ($10 multiplied by 3).
This same concept applies to businesses that have recurring monthly subscriptions. If someone subscribes to your service for 12 months, then their MRR would be $12 multiplied by 12, or $144.
The best way to increase MRR is by increasing the number of subscriptions that your business has. This can be done through marketing and sales efforts, or by making it easier for customers to subscribe to your service. You can also increase average MRR per subscription by raising prices or adding more features to your service.
However, it’s important to note that you don’t want to increase prices or add features just for the sake of increasing MRR. You need to make sure that any changes you make are beneficial to your customers and reflect the value of your service.
Now that we’ve answered the question “What is MRR and how to calculate it?”, let’s take a look at some of the benefits of tracking MRR.
Benefits of Tracking MRR
- Helps You Understand Your Business’ Financial Situation
One of the main benefits of tracking MRR is that it gives you a clear understanding of your business’ financial situation. You can easily compare MRR from one period to the next, and see how your monthly recurring revenue is trending over the past 6 months or year.
By understanding more thoroughly where your business stands financially, you’ll be able to use that information to make smarter decisions about pricing, features, marketing campaigns, customer acquisition efforts, etc.
- Provides a Measure of How Well You’re Growing Your Business
Knowing your MRR helps you understand the rate at which your business is growing by showing you how many new customers are subscribing to your service each month, or whether there is any decrease in number of subscribers. It also gives you an idea of how quickly people are signing up in response to your marketing efforts, or if any changes you made are resulting in more subscriptions.
- Helps Set Expectations with Investors and Lenders
If you’re looking to raise money through equity financing, tracking MRR gives investors an idea of how well your business is growing and gives them confidence that it’s on the right track. MRR can also be used when negotiating loans with lenders, as they’ll want to see that your business is generating a predictable level of income each month.
- Provides Insight into Your Customer Base
MRR can help you understand more about your customer base by showing you things like:
-The types of customers who are subscribing to your service
-The average revenue that each customer is generating
-How many customers are cancelling their subscriptions each month
By understanding this information, you can focus your marketing efforts on attracting more high value customers, or find ways to reduce the number of cancellations.
- Helps You Plan for the Future
Tracking MRR over time gives you the opportunity to see how your business has developed and changed. It also shows you which marketing efforts have been successful, as well as where your weaknesses lie.
This information can help you define future goals and determine what changes need to be made in order for your business to grow. This is beneficial because it improves efficiency by allowing you to focus on the activities that are most likely to result in increased MRR.
As you can see, there are many benefits to tracking MRR. By understanding your monthly recurring revenue, you’ll be able to make better decisions about the future of your business. So start tracking MRR today and watch your business grow.