What is MRR? (Monthly Recurring Revenue)
The MRR stands for Monthly Recurring Revenue, which is translated into French as monthly recurring income. It is a financial metric used primarily by businesses operating with a subscription model, such as SaaS businesses, online platforms, or subscription services.
MRR is the total amount of recurring revenue generated each month from customer subscriptions. It allows you to measure a company’s regular revenues in a clear and predictable way.
Unlike overall revenue, MRR only takes into account recurring revenue and excludes one-off revenue such as installation fees, one-off services or unit sales.
Why MRR is a key indicator
In subscription-based business models, MRR is one of the most important metrics for tracking the growth of a business.
- Revenue predictability: MRR allows future revenues to be estimated relatively reliably.
- Growth monitoring: the evolution of MRR month after month shows the growth dynamics of the company.
- Strategic management: it helps teams measure the effectiveness of marketing, sales and product actions.
- Valuation of a company: for investors, MRR is a central indicator in the evaluation of a SaaS startup.
By regularly analyzing MRR, a company can understand what really contributes to its growth and identify areas for improvement.
How to calculate MRR
Calculating MRR is relatively simple. It consists of adding up all the monthly recurring revenue generated by active subscriptions.
The simplest formula is:
MRR = sum of monthly subscriptions of all active customers
For example, if a company has 200 customers who each pay 30 euros per month, its MRR is 6,000 euros.
Annual subscriptions
When a customer pays an annual subscription, this amount must be converted into a monthly equivalent to include it in the MRR.
- a subscription of 1,200 euros per year is equivalent to 100 euros of MRR;
- a subscription of 2,400 euros per year is equivalent to 200 euros of MRR.
This conversion provides a consistent view of recurring revenue on a monthly basis.
The different components of the MRR
To analyze the growth of a subscription business, MRR is often broken down into several categories.
New MRR
New MRR corresponds to the recurring revenue generated by new customers acquired during a given period.
MRR Expansion
Expansion MRR represents the increase in revenue from existing customers, for example through upgrades or the addition of paid features.
Contraction MRR
Contraction MRR is the reduction in revenue when customers upgrade to a cheaper subscription or reduce their use of the service.
Churn MRR
Churn MRR is the recurring revenue lost when customers cancel their subscription.
By combining these different components, we can measure the net variation in MRR over a given period.
MRR and other SaaS indicators
MRR is often analyzed in addition to other indicators used in SaaS companies.
MRR and ARR
ARR stands for Annual Recurring Revenue. It generally corresponds to the MRR multiplied by 12.
MRR is useful for tracking monthly performance while ARR is often used to analyze performance over a longer period of time.
MRR and churn
The churn represents the loss of customers or recurring revenue. A high churn rate can slow down MRR growth even if the business acquires new customers.
MRR and LTV
LTV (Lifetime Value) corresponds to the total value generated by a customer over the entire duration of their relationship with the company. It makes it possible to assess the profitability of customer acquisition.
MRR and customer lifecycle
MRR evolves based on the customer lifecycle and different interactions with the company.
- Acquisition: new customers increase New MRR.
- Activation: good handling of the product reduces the risk of rapid termination.
- Retention: customer satisfaction helps stabilize recurring revenue.
- Expansion: upsells and additional options increase MRR.
- Termination: Unsubscribes reduce MRR via churn.
Optimizing each of these steps helps grow recurring revenue in the long term.
Common errors in MRR analysis
Include non-recurring revenue
A common mistake is to include one-time income in the MRR. The MRR should only include revenue that repeats in a predictable manner.
Ignore churn
Tracking only new revenue without considering customer churn can give an overly optimistic view of growth.
Analyze only global MRR
Looking only at total MRR can mask important trends. It is often useful to analyze it by customer segment, by product or by acquisition channel.
FAQ: Frequently asked questions about MRR
What does MRR mean?
MRR stands for Monthly Recurring Revenue. It represents the total amount of subscription revenue generated each month by a business.
How to calculate MRR?
The MRR is calculated by adding all the monthly amounts of active subscriptions. Annual subscriptions must be converted to monthly equivalent.
What is the difference between MRR and turnover?
Revenue includes all of a company's revenue, while MRR focuses only on recurring revenue from subscriptions.
What is the difference between MRR and ARR?
MRR is monthly recurring revenue while ARR is annual recurring revenue, usually calculated by multiplying MRR by 12.
Why MRR is important for SaaS businesses?
MRR makes it possible to track recurring revenue growth, anticipate future revenues and measure the overall performance of a subscription-based business model.
How to increase your MRR?
To increase MRR, a company can acquire new customers, reduce churn, offer upsells, add paid features, or improve retention of existing customers.
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