• Finance , Higher Level Management , Metrics and Ratios , SaaS ,
• 24 Nov

Net New Monthly Recurring Revenue looks at the amount of new MRR that is being realized each month in the form of cash flows. We take new accounts plus upgrades to existing accounts and subtract the churn to get our Net New MRR. Here is a link to learn about MRR in general. 

This ratio helps us understand the overall effectiveness of marketing, sales, and product strategy in a competitive marketplace. It’s important  to allocate efforts and resources towards initiatives in a way that increase this  metric. We want more customers spending more money right? It’s not always as easy as it sounds but bench-marking this metric and understanding it’s drivers is one step in the right direction.

Net New Monthly Recurring Revenue

where

New Monthly Recurring Revenue

Expansion Monthly Recurring Revenue

Churn Monthly Recurring Revenue

New Monthly Recurring Revenue

This is brand new MRR and comes from new customers.

Expansion Monthly Recurring Revenue

These are upgrades that your clients make for additional services, or a higher priced subscription or recurring service that increases the MRR.

Churn Monthly Recurring Revenue

This is the monthly recurring revenue that is lost from clients downgrading or cancelling their subscription.

Other Considerations

This concept breaks down MRR into into different dimensions which helps your analysis.  While it may seem obvious to want to improve all 3 parts of this formula, your company may find it easier to affect one variable over another. For instance, if you are great at getting new customers, but they leave right away, decreasing your Churn MRR may help  increase your Net New MRR ceteris paribus. A simple cost-benefit analysis can be ran on what it takes to increase each variable and it’s affect on the overall metric. This will assist in finding more efficient ways to increase monthly revenue and continue growth.