Monthly Recurring Revenue (MRR)

What is Monthly Recurring Revenue?

MRR stands for Monthly Recurring Revenue and refers to the predictable income that a company can expect each month from existing subscription or contract relationships. This key figure is particularly relevant for companies with recurring business models such as SaaS providers (software as a service), subscription services or companies with monthly maintenance contracts. In contrast to ARR, MRR provides a more granular, short-term view of business development.

Distinction from similar concepts

• ARR (Annual Recurring Revenue): Annual recurring revenue calculated by multiplying MRR by 12
• Total monthly turnover: In contrast to MRR, it also includes one-time sales and non-recurring income
• Booking: Records the total value of a contract at the time of signing, regardless of the monthly payment method
• Cash Flow: Refers to actual incoming payments, while MRR represents the contractually agreed recurring value

Calculation of MRR

MRR is calculated using various approaches, depending on the business model:

Basic formula: MRR = number of active subscribers × Average monthly revenue per customer (ARPU)

Adjustments must be made for different billing cycles:

• Annual subscriptions: Annual amount ÷ 12 = monthly MRR contribution
• Quarterly billing: Quarterly amount ÷ 3 = monthly MRR contribution
• Multi-year contracts: Total contract value ÷ duration in months = monthly MRR contribution

Calculation example. A company has:

• 800 monthly subscribers à 50€
• 200 annual subscribers at 480€ (= 40€ monthly)
• 100 quarterly subscribers at 120€ (= 40€ monthly)

MRR = (800 × 50€) + (200 × 40€) + (100 × 40€) = 40,000€ + 8,000€ + 4,000€ = 52,000€

MRR components and dynamics

The development of MRR is influenced by the following factors:

• New MRR: New recurring turnover through acquisition of new customers
• Expansion MRR: Additional recurring revenue through upselling and cross-selling with existing customers
• Contraction MRR: Reduce recurring revenue by downgrading existing subscriptions
• Churn MRR: Loss of recurring income due to cancellations
• Net New MRR: The sum of New MRR and Expansion MRR minus Contraction MRR and Churn MRR

Significance for corporate management

The MRR offers several benefits for operational management:

• Short-term forecast of sales development
• Quick identification of trends and changes
• Basis for monthly budget planning and forecasting
• Early identification of customer retention or acquisition problems
• Operational management of sales activities
• Evaluation of the effectiveness of marketing and retention measures

MRR analysis and segmentation

For detailed analysis, the MRR can be segmented according to various dimensions:

• By customer segments: Enterprise, SMB, startup customers
• By product lines: Different service tiers or product categories
• By sales channels: Direct Sales, Partners, Self-Service
• By geographical region: Local vs. international markets
• By customer age: New vs. established customer relationships

Optimization approaches for MRR growth

Companies can increase their MRR through various strategies:

• Acquisition of new customers: Increase in monthly new customer rate
• Churn reduction: Improving customer loyalty and satisfaction
• Upselling: Upgrade existing customers to higher-value plans
• Cross-selling: Selling additional products or services
• Price optimization: Adjustment of the price structure based on value perception
• Retention programs: Proactive measures for customer loyalty

MRR in the context of company valuation

For investors and stakeholders, the MRR is an important indicator of:

• Short-term business development and operational efficiency
• Predictability and stability of revenue
• Growth dynamics and scalability of the business model
• Quality of customer relationships and product offerings

MRR measurement challenges

When correctly determining the MRR, the following aspects must be considered:

• Seasonal fluctuations and their normalization
• Correct handling of discounts and promotions
• Distinction between guaranteed and variable turnover
• Dealing with different currencies for international customers
• Consideration of payment defaults and bad receivables

Monthly Recurring Revenue FAQ

• ‍How is MRR different from ARR? MRR provides a monthly, shorter-term view of recurring revenue, while ARR (MRR × 12) provides an annual perspective for long-term planning and evaluation.
• ‍Should free trials be included in MRR? No, free trial versions do not generate revenue and should not be included in the MRR calculation. However, they can be tracked separately as a potential pipeline.
• ‍How do you deal with seasonal fluctuations? Seasonal business models should look at both the current MRR and a moving average or seasonally adjusted MRR to correctly identify trends.

Related terms

• Annual Recurring Revenue (ARR)
• Customer Lifetime Value (CLV/LTV)
• Churn Rate
• Average Revenue Per User (ARPU)
• Customer Acquisition Cost (CAC)
• SaaS metrics

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