• Finance , Higher Level Management , SaaS ,
• 24 Nov

Monthly Recurring Revenue is the amount of revenue recieved each month in a subscription based revenue model. the MRR formula becomes an essential variable in many types of analysis. There is a lot you can do with MRR but this goes over the basic formula and idea. You may also hear of Net New or Committed MRR that are an easy variation on this. You can use this as your baseline when forecasting future revenue. It’s recurring so you hopefully can feel pretty confident using this as a starting point.

Monthly Recurring Revenue

where

Monthly Recurring Revenue

Customer Plan 1, Customer Plan 2, 3, etc.

Correlating price for each Customer plan from above

Monthly Recurring Revenue

You can also take your total customers and divide it by total revenue to get an average MRR. Some companies look at annual recurring revenue as well. This excludes one time service and implementation fees.

Customer Plan 1, Customer Plan 2, Customer i

We take the number of customers at the beginning of the period. This could also be a user, bundle, package, or any other offering that has a price allocated to it.

Price 1, Price 2, Price i

This is the correlating price for each Customer plan from above.

Other Considerations

Industry averages are great measures to compare your company performance against. Some industries that have very high churn rates and others are very low. For example, it’s a lot easier to change the type of creamer you have in your break room compared to changing your entire ERP system.