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The Holy SaaS Grail: Monthly Recurring Revenue

Recurring revenue is the lifeblood of any SaaS. It’s what makes building a SaaS so appealing. You don’t have to worry about one-off sales that may or may not return. If you’ve got a solid product, they automatically return. Every. Single. Month. Amazing!

The metric that you’ll use to track that pot of recurring gold is called Monthly Recurring Revenue (almost always referred to simply as “MRR”). In general, it’s a straight forward metric, but there are some nuances that you’ll want to take in to consideration depending on your business model.

Curious what the MRR is of another startup? Check out our actual MRR in our public dashboard.

What exactly is MRR?

MRR is all of your recurring revenue normalized in to a monthly amount.

It’s a way to average your various pricing plans and billing periods in to a single, consistent number that you can track the trend of over time.

How do you calculate MRR for a SaaS?

Say you have Customer A paying $100/mo and Customer B paying $50/mo. Your MRR would be $150.

That’s the customer-by-customer way to do it. Which is painfully tedious and requires you to spend time in a spreadsheet which will make you want to kick things in the shins. Bad outcome.

An easier way to calculate it is to multiply the total number of paying customers by the average amount all of those customers are paying you each month (know as ARPU, which we covered briefly in the article on churn).

So 5 customers paying you an average of $100/mo would mean an MRR of $500. Ah, much easier.

Baremetrics (subscription analytics & insights) does this entire calculation automatically for you with a single click. Yes, really.

What about annual or quarterly plans?

Any non-monthly billing period should be normalized in to a monthly amount. So if you have a $1,200 per year plan, you’d just divide by 12 (adding $100 to your MRR figure). For quarterly, you’d divide by 3.

Calculating New MRR

As you begin growing your SaaS, you’ll want to know not only what your current MRR is, but what factors make up the change in your MRR over previous months.

If you add a $1,000 in new MRR, you want to know where that came from, right?

There are 3 elements that make what we’ll call “Net New MRR.”

  • New MRR = Additional MRR from new customers
  • Expansion MRR = Additional MRR from existing customers (generally in the form of an upgrade)
  • Churned MRR = MRR lost from cancellations and downgrades

Net New MRR = New MRR + Expansion MRR - Churned MRR

If you churn more MRR than you get from New or Expansion MRR, you end up losing MRR that month…which would make you sad. Very, very sad.

The holy grail of MRR

This doesn’t get talked about much, but one of the most powerful ways of growing your business is with Expansion MRR…that is, MRR from your existing customers.

When Expansion MRR is greater than Churned MRR, you get end up with a money-printing machine that nearly knows no bounds.

If your Expansion MRR always outdoes the revenue you lose from a churned customer, then your revenue churn becomes somewhat of a non-issue because every new customer you bring is then giving you more and more money over time…so much so that it overtakes the revenue you lost from churn.

This is referred to as Negative Churn.

Expansion revenue typically comes from upgrades to more feature-rich plans, recurring add-ons or additional users (when you charge on a per-user basis).

If you aren’t taking advantage of expansion MRR, I highly suggest you look in to it and test it for your business.

Calculating MRR and more with a single click

If the thought of calculating MRR (or any other metric for that matter) by yourself is daunting, check out Baremetrics. We provide one-click, zero-setup subscription analytics & insights.

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