Monthly Recurring Revenue (MRR) is a measure of your normalized (amortized) monthly subscription revenue. SaaS is all about the steady growth of predictable, monthly recurring subscription revenue, which means that MRR is arguably the most important SaaS metric.
Tracking and analyzing your MRR is crucial to understanding and growing your business. It allows you to see how you’ve performed up until now and forecast where you’ll be next month, quarter, or year.
Calculating monthly recurring revenue (MRR)
To calculate MRR, add up all the revenue that customers pay on a monthly/subscription basis.
If customers pay for an extended period — for example, a full year — you should split the payment by the number of periods (12 in this example) and add that to your MRR.
Let’s look at an example:
You have 5 customers:
- Customer A is paying you $10/month;
- Customer B is paying $10/month as well but also paid a one-time $100 setup fee;
- Customer C paid $60 in January for the whole year;
- Customer D was at risk of churning, so you offered them a 20% discount and they’re now paying $8/month;
- Finally, Customer E recently converted to your Premium plan and are now paying $15/month.
In this example your MRR is (10 + 10 + (60/12) + 8 + 15) = $48.
MRR should only include the recurring portion of the revenue — any type of one-time charge or fee should be excluded from your calculation.
MRR Movements: New Business, Expansion, Contraction, Churn, and Reactivation
MRR Movements: New Business, Expansion, Contraction, Churn, and Reactivation
Breaking MRR into its component parts gives useful insight into your business's revenue flow, both inbound and outbound. When viewed as a monthly trend, it’s easy to evaluate high-level performance compared to previous months.
MRR can be broken down into five movements:
- New Business MRR is the new (recurring) revenue added during a given period. Leads converting to new customers.
- Expansion MRR involves revenue added from existing customers. For example, customers paying more due to upgrading to a higher pricing tier or customers buying add-ons.
- Reactivation MRR is where previously active customers move back onto a paid plan.
- Contraction MRR is the opposite of expansion, meaning customers could switch to a lower-priced plan or stop using the add-on that they were once paying for.
- Churned MRR covers the people who cancel their plans during a given time period.
New Business MRR is the most common way of growing your business, but new business acquisition can be costly. To grow MRR, try increasing revenue from existing or past customers. If you’re struggling with downgrades and churn, focus on improving your Contraction MRR and Churn MRR numbers. These are the strategic decisions that can make or break your business.
What is a good MRR growth rate in B2B SaaS?
If you’re a ChartMogul Subscription Analytics customer, you can overlay your metrics on top of Benchmarks to compare your performance to your peers. You can also have an added layer of context by drilling down by ARR or ARPA range. This helps your team identify your strengths, if you’re improving over time, and where there is room for growth.
ChartMogul’s Benchmarks uses anonymized and aggregated data from more than 2,500 SaaS businesses to calculate industry growth rates.
Over the past two years, we’ve shared insights on this data through the SaaS Retention Report, SaaS Growth Report and SaaS Benchmarks Report.
Why is MRR important?
Subscription revenue is powerful. It accumulates and compounds over time.
Measuring monthly recurring revenue is important because the data can identify areas that need prioritization or tweaking with the hope of improving revenue and reducing churn.
It will help you learn more about your service and your customer base too. Using this knowledge to make changes could see the product being optimized to a higher level, so it’s more of a fit for your target audience.
We all know that the SaaS model is powerful for revenue as it accumulates and compounds over time. Not only is it attractive to startups and investors, but buyers too. Subscriptions are low-cost and low-commitment, with no lock-ins and the ability to cancel whenever needed. But, keeping a check of the recurring revenue that is being lost or bolstered (when a customer changes their plan or cancels) is needed to help you better predict the finances going forward.
Joel Gascoigne, CEO at Buffer In today’s market average is losing - or more accurately, median is losing. There is a huge difference between being in the top quartile and being on the median. It’s the same difference between having a very strong business and a very meh business. We certainly saw this when I was a VC. We had around 2,000 companies in our portfolio, but all our fund returns came from the top 5%. Things might have looked better for median companies during the free-spending boom of 2020, but that was the anomaly. 2023 is a lot more typical of long-term economic conditions.
Grow revenue with MRR
Unlock new opportunities with segmentation
Go a level deeper and segment your data to answer questions such as “What’s our MRR sliced by industry? What’s the churn rate for SMB vs Enterprise customers? What’s our ARPA by business region?” and more.
MRR is more than just a metric — it’s an opportunity for answers that can transform your business. And you can achieve that by running complex, segmented analyses on your data.
When you segment the insights, you’re able to get closer to understanding your customers which will drive business decisions forward. This takes away the feeling of being in the dark, as you have the information about what’s working and what isn’t.
Identifying high-value customer segments based on lifetime value, usage patterns, and behavior means you can re-focus marketing efforts to maximize MRR.
Find new growth levers through MRR movements
The changes that take place in each active subscription are classed as movements. When the overarching data is narrowed down into these sub-categories, it’s much easier to determine which areas need further refining and how to establish growth through another.
New Business MRR is one of the most common ways to grow a business, but lead acquisition can be costly. This is where you can focus on Expansion MRR or Reactivation MRR to increase revenue from existing or past customers.
Deep diving into Expansion MRR will show which add-ons are most popular or which upgrades people are opting for. Once you know this, you can tailor your advertising and marketing to suit.
Looking into the Churned MRR movement could help you establish an understanding of when customers are dropping off. This is where you can increase communication to hold their attention and re-engage them before the inevitable happens.
When looking at the data from ChartMogul’s SaaS Growth Report, it was found that Expansion accounts for a third of all revenue gained post $1M ARR. Companies with best-in-class retention were also found to grow at least 2.3x faster than their peers.
Optimize the product
When analyzing the MRR data, leaning into the performance of the different offerings of your business (like pricing tiers and plans) can identify which areas are generating the highest revenue.
If you’re experimenting with the product offerings to different subscription tiers or pricing, you can find the sweet spot between increasing MRR and attracting and retaining customers. This is one of the easiest ways to increase monthly recurring revenue, but you must have the data to back your decision.
Understand customer behaviors
To increase MRR, you need to know why customers are slipping away. Once you know this, you can take informed actions to improve growth.
Having this data will allow you to see the recurring revenue that you’re slowly losing, meaning you can make some changes to stop the churn. You can get these insights through using a combination of Intercom, ChartMogul, and Zapier.
With these three, you can see all the relevant SaaS metrics at an easy glance. You’ll be able to see which users were last seen more than 10 days ago and less than 60. You could also look at those who have a high number of total web sessions but are no longer logging in very much.
To see how much of your MRR is slipping away from you, while giving yourself the chance to make a change, find out how you can gain valuable insights here.
Enrich revenue data
Your success in SaaS has a lot to do with the cost of growth. Growing efficiently means balancing acquisition costs with customer lifetime value (LTV) and fostering healthy account expansion. Revenue intelligence comes from enriching your subscription metrics with customer and business data from other records.
Segment New Business MRR per marketing channel to figure out how to optimize your marketing budgets.
For example, creating custom attributes to the number of new customers can tell you where these people are being attracted from and what leads are working best. You can go more granular and look at how many people were generated by a campaign, by search engine, or more.
Advertising costs can be expensive, especially if you’re running them on multiple platforms, so ensuring they’re actually working is imperative. Through adding custom attributes, you can see how much organic search accounts for customers and revenue in comparison to Google Ads campaigns (or other methods). With this knowledge, you can adjust marketing to discontinue high-cost efforts that aren’t bringing in results.
