Monthly recurring revenue calculation
What is monthly recurring revenue (MRR), and how does a Customer Success team calculate it? Learn more about how to start with a simple MRR calculation and expand it to accommodate your growing SaaS company.
What is monthly recurring revenue (MRR)?
Monthly recurring revenue (MRR) is the sum of your recurring revenue at the end of the month. MRR provides SaaS companies a month-to-month view on how recurring revenue is contributing to their subscription business.
How to calculate monthly recurring revenue with examples
How you calculate MRR varies, depending on your company’s primary sales channels and subscription model.
Simple MRR example (new subscribers x subscription fees)
It’s October and your company has three customers. They all started in different months. Two customers paid for a full year up front, while one customer pays on a monthly subscription schedule. Calculate only what the payments would be if all three customers paid an equivalent portion for that month:
- Joined in January, paid $12,000 for the full year
- October MRR: $1,000
- Joined in August, paid monthly rate of $1,000 for August and September
- October MRR: $1,000
- Joined in March, paid $24,000 for the full year, and paid an additional $3,000 for a one-time implementation.
- October MRR: $2,000 (only the software cost is recurring)
October MRR total: $4,000
MRR example with revenue variables (expansion, upgrades, churn, contractions)
Most companies have revenue variables that they want to (and should) include in their recurring revenue models. The calculation below takes into account new customers and expansion opportunities from existing customers in one month. It then subtracts any customer contraction and churn from that same month:
MRR = (new MRR + expansion MRR) – (churn + contraction MRR)
Now let’s amend our original October MRR example to include some of these additional revenue variables:
- 3 customers joined in October, paid $12,000 each for the full year
- 1 customer joined earlier in the year and paid its monthly subscription of $1,000
- October MRR: $4,000
- 4 existing customers upgraded their subscriptions for an additional $500 each
- October MRR: $2,000
Churn + Contraction MRR:
- 1 customer downgraded their subscription by $1,500
- Luckily, no customers left (churned) this month
- October MRR: -$1,500
October MRR total: $4,500 [ ($4k + $2k) – $1.5k]
MRR vs ARR and tracking revenue long-term
Due to natural data fluctuations over short periods of time, it’s important to consider tracking annual recurring revenue (ARR) and using this metric as a benchmark for your subscription model and long-term goals. But if you’re a smaller (or newer) SaaS company with month-to-month subscription plans, the MRR metric will be useful and sufficient for your existing needs.
Why monthly recurring revenue matters
MRR is a unifying metric for any SaaS company, as it helps track and report on incoming revenue no matter the customer type, contract details and duration, or total number of customers. It also encompasses many different company factors, such as churn, reactivations, expansions, upgrades and new business. Your company decides what to include in its calculations – just remember this is not revenue recognized, but instead an easy tracking metric for the flow of incoming revenue.
Also keep in mind that calculating and tracking MRR can become more complicated as a SaaS business grows (think new products, add-ons, price tiers, discounts, and more), meaning a more diverse customer base and responsibility towards investors. You may encounter exceptions in your MRR calculations, such as variable start dates, gaps in contracts, and early renewals/upgrades.
Additional resources on monthly recurring revenue
- Webinar: SaaS retention benchmarks: How does your company compare? with Rob Belcher, managing director at SaaS Capital
- Blog: Everything You Need to Know About Recurring Revenue
- Blog: 20 quick insights on Customer Success and SaaS metrics with Dave Kellogg, Dave Kellogg Consulting
- Blog: Key SaaS and Customer Success metrics you should care about with You Mon Tsang, CEO and co-founder, ChurnZero and Dave Kellogg, Dave Kellogg Consulting