SAAS ANSWERS
The simple answer is that MRR is your Monthly Recurring Revenue and one of the key metrics that SaaS companies use to evaluate success.
BUT LET’S GO DEEPER
MRR is a way to normalize varying packages and terms.
MRR also directly correlates to dollars versus other metrics like users, accounts, or other ambiguous indicators.
Why does revenue need “normalized”?
- You probably have multiple package levels or even custom packages.
- Accounts may renew annually and monthly.
- Accounts may renew on different dates or be prorated.
- Accounts are lost – churn; and accounts are won – sales.
- You may have upgrades and downgrades at different times.
MRR is frequently used in a number of critical subscription performance reports: Momentum, Customer Lifetime Value (uses MRR in the CLV computations) and MRR Cohort.
SAAS MRR
Some MRR formula examples.
NET MRR
40,100 +
Existing MRR
2,400 +
New MRR
7,900 –
Expansion MRR
1,200 =
Churn MRR
49,200
Net MRR
GROSS MRR CHURN RATE
1,200 /
Churn MRR
40,100 =
Total MRR At Start Of Month
3% ( .029 )
Gross MRR Churn
GROSS MRR GAIN
(2,400 +
New MRR
7,900 –
Expansion MRR
1,200 ) /
Churn MRR
40,100 =
Existing MRR
25%
Gross MRR Gain
OK, NOW WHAT
Your goal is to reduce volatility of these numbers and ensure their trajectory.
MRR Volatility (big gains and losses month to month) can indicate unpredictable marketing, incorrect package terms, high churn and other underlying issues.
Gross MRR Churn Rate should be consistently going down. Otherwise you need to look at retention strategies.
Gross MRR Gain Rate should be consistently going up. Otherwise you need to look at marketing strategies and conversion.
Written by: Andy Halko, CEO & Founder
I started Insivia in 2002 and for over 22 years I have had the chance to work directly with hundreds of companies and founders to redefine or reinvent their businesses.