Monthly Recurring Revenue (MRR) | Formula, Explanation, & Examples

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Looking to learn about monthly recurring revenue (MRR)?

MRR is a key term to understand as you scale an agency, a SAAS company, a marketplace, or other digital service companies.

My name is Connor Gillivan. I’m an Entrepreneur and I’ve scaled multiple companies to 6, 7, and 8 figures with monthly recurring revenue.

Right now, I run 3 companies where MRR is a big part of how we scale.

In this article, we’ll dive into everything you need to know about MRR.

Here’s what we’ll cover:

What Is Monthly Recurring Revenue (MRR)?
Why Is Monthly Recurring Revenue (MRR) Important For Your Business?
How Do You Calculate Monthly Recurring Revenue (MRR)?
MRR Example #1: Marketing Agency
MRR Example #2: SAAS Company
MRR Example #3: Bookkeeping Service
5 Tips to Increase Your Company’s MRR

What Is Monthly Recurring Revenue (MRR)?

Monthly Recurring Revenue (MRR) is a crucial metric for any SaaS company or agency that wants to scale to 6, 7, or 8 figures.

Simply put, MRR is the amount of predictable, recurring revenue that a business generates every month from its subscription-based products or services.

This metric is essential because it provides a clear picture of the company’s revenue stream, making it easier to forecast revenue, plan for growth, and make informed business decisions.

One of the key benefits of MRR is that it helps companies better understand their customer retention rate.

If a business has a high MRR, it means that they are retaining customers over time, which is a critical component of long-term success.

As an experienced entrepreneur who has built and scaled multiple SaaS companies and agencies, I can tell you that monitoring MRR is one of the most important things you can do to ensure the success of your business.

Why Is Monthly Recurring Revenue (MRR) Important For Your Business?

Here’s 3 reasons that MRR is important:

Helps You to Understand Customer Retention Rate: By monitoring MRR, businesses can determine how many customers are retaining their subscriptions over time, a critical component of long-term success. SaaS and agency businesses with high MRR demonstrate customer loyalty and create a reliable revenue stream.
Forecasting Future Revenue: As you track MRR, you’ll start to see how much revenue you can expect from your customer base for the next month, the next quarter, etc. As you sign up new customers, you’ll also be able to make better projections for the future.
Helps Your Business Grow Profits: When customers are paying you a set amount each month, you can add more customers and that amount will go up. As you reach scale with your business, the cost of fulfilling the service or product will go down due to economics of scale. When this happens, your profits will go up.

How Do You Calculate Monthly Recurring Revenue (MRR)?

Calculating MRR involves determining the total revenue generated from all active subscriptions in a given month.

The formula for calculating MRR is relatively straightforward:

MRR = (Number of Customers) x (Average Revenue Per Customer Per Month)

To calculate the average revenue per customer per month, divide the total revenue generated from all active subscriptions by the total number of active customers.

It’s essential to note that the calculation of MRR is not a one-time process. It requires continuous monitoring and adjustment as customer numbers and subscription rates change over time.

Another factor to consider when calculating MRR is churn rate, or the percentage of customers that cancel their subscriptions in a given period. Businesses must monitor their churn rate as it can significantly impact MRR and overall revenue. By focusing on reducing churn and increasing customer retention, SaaS companies and agencies can improve their MRR and create a more stable revenue stream.

Here’s another resource to learn how to calculate MRR:

MRR Example #1: Marketing Agency

Suppose the agency offers a range of subscription-based services, such as social media management, content creation, and email marketing. The agency’s pricing model is based on a monthly fee charged for each service, with prices ranging from $500 to $2,000 per month.

To calculate MRR for this agency, we need to determine the total revenue generated from all active subscriptions in a given month.

Let’s assume that the agency has 10 clients who subscribe to their services, with the following monthly pricing:

5 clients pay $500 per month for social media management
3 clients pay $1,000 per month for content creation
2 clients pay $2,000 per month for email marketing

To calculate MRR, we would add up the monthly subscription fees for all active clients:

MRR = ($500 x 5) + ($1,000 x 3) + ($2,000 x 2)

MRR = $8,500

So, this marketing agency’s MRR is $8,500.

MRR Example #2: SAAS Company

Suppose the company offers a cloud-based project management tool for small and medium-sized businesses.

The company has a tiered pricing model based on the number of users and features, with prices ranging from $29 to $99 per user per month.

Assuming that the company has 500 active customers, with the following breakdown of pricing tiers and user numbers:

300 customers subscribed to the basic plan for $29 per user per month, with an average of 3 users per customer.
150 customers subscribed to the standard plan for $59 per user per month, with an average of 5 users per customer.
50 customers subscribed to the pro plan for $99 per user per month, with an average of 10 users per customer.

To calculate the MRR for this SaaS company, we would use the following formula:

MRR = (Number of Customers) x (Average Revenue Per Customer Per Month)

First, we would calculate the average revenue per customer per month by adding up the monthly subscription fees for all active customers and dividing by the total number of customers:

Average Revenue Per Customer Per Month = ($29 x 3 x 300) + ($59 x 5 x 150) + ($99 x 10 x 50) / 500

Average Revenue Per Customer Per Month = $45.60

Next, we would use this value to calculate the MRR for the SaaS company:

MRR = 500 x $45.60

MRR = $22,800

MRR Example #3: Bookkeeping Service

Suppose the service offers bookkeeping and accounting services to small and medium-sized businesses on a subscription basis.

The service offers three pricing plans based on the volume of transactions per month, with prices ranging from $300 to $1,000 per month.

Assuming that the bookkeeping service has 50 active clients, with the following breakdown of pricing plans and transaction volumes:

20 clients subscribed to the basic plan for $300 per month, with an average of 50 transactions per month.
20 clients subscribed to the standard plan for $500 per month, with an average of 100 transactions per month.
10 clients subscribed to the premium plan for $1,000 per month, with an average of 250 transactions per month.

To calculate the MRR for this bookkeeping service, we would use the following formula:

MRR = (Number of Clients) x (Average Revenue Per Client Per Month)

First, we would calculate the average revenue per client per month by adding up the monthly subscription fees for all active clients and dividing by the total number of clients:

Average Revenue Per Client Per Month = ($300 x 20) + ($500 x 20) + ($1,000 x 10) / 50

Average Revenue Per Client Per Month = $540

Next, we would use this value to calculate the MRR for the bookkeeping service:

MRR = 50 x $540

MRR = $27,000

5 Tips to Increase Your Company’s MRR

Focus on Customer Retention: The key to increasing MRR is to retain your existing customers. Your current customers are your best source of revenue because they are already familiar with your product or service and are more likely to make repeat purchases. Therefore, you must focus on delivering an excellent customer experience to keep your customers coming back.
Offer Annual Plans: Offering annual plans is an effective way to increase MRR because customers who opt for annual plans usually pay upfront for the entire year, providing you with a reliable source of revenue for the next 12 months. Additionally, offering a discount to customers who opt for annual plans can incentivize them to commit to a longer-term relationship with your business.
Upsell and Cross-Sell: Upselling and cross-selling are powerful techniques that can increase your company’s MRR by increasing the average revenue per customer. Identify opportunities to upsell or cross-sell additional products or services to your existing customers, based on their needs and preferences.
Offer Add-Ons: Offering add-ons is another effective way to increase MRR. For example, if you offer a saas product, you could offer additional storage or customization options as add-ons. These options provide an opportunity to generate additional revenue from your existing customers.
Regularly Review and Adjust Your Pricing Strategy: Regularly reviewing your pricing strategy is essential to ensure that you are not leaving money on the table. Adjusting your pricing strategy can help you optimize your MRR by ensuring that you are charging the right amount for your products or services based on market demand, competition, and customer feedback.

What Is AccountsBalance?

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We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.

You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.

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