Monthly Recurring Revenue (MRR) is the total predictable revenue a business expects to receive on a monthly basis from its subscription customers. MRR is a critical metric for subscription-based businesses as it helps measure the stability and growth of revenue over time. It only includes recurring revenue, such as monthly subscription fees, and excludes one-time payments, setup fees, or any other non-recurring charges.
How to Calculate MRR
MRR is calculated by multiplying the total number of subscribers by the average revenue per user (ARPU) per month.
Formula:
Examples:
Examples:
1. Basic Example: A company has 100 subscribers, each paying $50 per month. The MRR is:
\begin{align}MRR&=100\times50\cr&=5,000\text{ USD}\end{align}
\begin{align}MRR&=100\times50\cr&=5,000\text{ USD}\end{align}
2. Tiered Pricing Example: A company offers two subscription tiers: 50 subscribers pay $30 per month, and 50 subscribers pay $70 per month. The MRR is:
\begin{align}MRR &=(50 \times 30)+(50 \times 70)\cr&=1,500+3,500\cr&=5,000\text{ USD}\end{align}
\begin{align}MRR &=(50 \times 30)+(50 \times 70)\cr&=1,500+3,500\cr&=5,000\text{ USD}\end{align}
Key Considerations
- Excludes One-Time Payments: MRR should only include recurring subscription fees, not one-time payments, setup fees, or hardware sales.
- Account for Discounts: When calculating MRR, account for any discounts provided to customers, as this affects the actual revenue received.