Monthly Recurring Revenue, or MRR, measures the predictable revenue a subscription business expects to receive each month. MRR provides a clear picture of business health and growth trajectory, excluding one-time fees and variable charges. Tracking MRR alongside metrics like new MRR, expansion MRR, and churned MRR reveals whether the business is growing, stagnating, or declining. For subscription companies, MRR is a critical metric for forecasting, valuation, and making strategic decisions about growth investments and resource allocation.
How do you calculate Monthly Recurring Revenue (MRR) for a B2B SaaS business?
To calculate Monthly Recurring Revenue (MRR) for a B2B SaaS business, multiply the number of paying customers by their average monthly subscription value. For example, if you have 100 customers paying an average of $250 per month, your MRR would be $25,000. For annual contracts, simply divide the total contract value by 12 to convert it to a monthly figure. Remember to exclude one-time payments, setup fees, or non-recurring add-ons from your calculations to maintain an accurate view of your predictable revenue stream. Track this metric consistently month-over-month to identify growth patterns and make data-driven business decisions.
What strategies can improve MRR growth and reduce churn for subscription businesses?
To improve MRR growth, focus on upselling existing customers with premium features, implementing strategic price increases, and creating longer-term contracts with incentives. Reduce churn by establishing a proactive customer success program that identifies at-risk accounts before they cancel and regularly collects feedback to address pain points. Optimize your onboarding process to ensure customers quickly achieve value, implement a win-back campaign for recently churned customers, and consider offering annual billing options with discounts to lock in revenue for longer periods.
What's the difference between ARR and MRR in subscription revenue models?
ARR (Annual Recurring Revenue) represents the annualized value of subscription revenue, essentially MRR multiplied by 12, providing a longer-term view of business performance. While MRR focuses on month-to-month revenue fluctuations and immediate cash flow, ARR helps with annual planning, investor discussions, and understanding the overall business trajectory. ARR is particularly useful for B2B companies with annual contracts, while MRR offers more granular insights for businesses with monthly billing cycles or high churn rates. Both metrics work together to give growth teams a complete picture: MRR for tactical adjustments and ARR for strategic planning and valuation discussions.
