What is monthly recurring revenue and how to calculate it

To increase earnings and sales, data-driven companies must closely monitor sales and SaaS metrics, like average order value, monthly revenue, upgrades, and downgrades. These key metrics help business owners and marketers measure a company's financial health and make better business decisions. It also gives you a benchmark for better understanding customer behavior and building a pricing strategy that adds value.

Here’s everything you need to know about monthly recurring revenue (MRR) and how to calculate it.

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What is a monthly recurring revenue?

Monthly Recurring Revenue (MRR) is the total revenue generated by a business with monthly subscriptions. This particular metric is based on a subscription model and can also be calculated as an annual recurring revenue (ARR).

There are different types of MRR:

New MRR: new customers gained during a month
Upgrade MRR: the additional revenue generated from subscriptions that move from existing pricing plans to higher plans
Downgrade MRR: the reduced revenue from subscriptions that have moved from their existing plan to a lower plan
Expansion MRR: the additional revenue gained from existing customers in a given month compared to the previous month.
Reactivation MRR: the monthly revenue generated by previously churned customers returning to a paid plan
Contraction MRR: the amount your business loses due to subscription cancellations and downgrades
Churn MRR: MRR churn is the total amount your business loses due to subscription cancellations
Net new MRR: how much your revenue has grown (or shrunk) in the present month compared to the previous month

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How to calculate your monthly recurring revenue?

The total MRR growth rate is crucial for any business and sales team to track in order to monitor the customer base and their engagement towards the product or service. MRR calculations also help predict future revenue with data-based forecasting.

Monthly recurring revenue Formula (MRR formula)

Calculating MRR is simple, just multiply the monthly subscribers by the average revenue per user (ARPU).

MRR = Number of subscribers under a monthly plan X ARPU

Monthly recurring revenue KPI examples & templates

In some of our report templates, you can add your most important metrics related to your customer base.

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See this KPI in action here!

Ecommerce report template

A report with all the most critical metrics for your eCommerce site, like shopping cart abandonment, click-through rate, and revenue. Gather data from Shopify, Google Analytics, and different advertising platforms.

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Executive report template

This dashboard template is filled with metrics your C-suite will want to see. Please show them your revenue, new customers, customer churn rate, and more. You can also add current customer satisfaction KPIs, gross margin, or other customer data for a better overview.

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Google Analytics report template

Get essential analytics metrics in real time. Check the total number of customers, traffic, sessions, goal completions, customer journey through your website, and more with this easy-to-use GA template.

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Monthly recurring revenue best practices

Here are some best practices you should remember to achieve a better MRR.

Upselling or cross-selling complementary products

You want to push some complimentary products to have a higher average order value for any subscription business model. This, in return, will get you a high MRR. Offer add-ons, use cross-selling or upselling, and offer free perks to achieve better retention.

Offer different pricing for yearly plans

Offering a yearly plan helps business owners get better predictable revenue by offering a one-time fee for the service. This is a good way to reduce churn and finalize your clients for a longer period of time. In return, they benefit from a better price than if they went with a monthly fee.

Offer different pricing for yearly plans

One thing that saas businesses and startups have in common: they want to lower the churn rate. You can offer exceptional customer service, assist your clients with issues, and generally provide a good experience. This starts with fair pricing for the value your product/service brings.