Formula for MRR
MRR = (Existing Revenue)+(New Revenue)+(Expansion Revenue)−(Churn)
- Existing Revenue: Monthly revenue from existing customers before this month.
- New Revenue: Revenue added from new customers acquired this month.
- Expansion Revenue: Additional revenue from existing customers who upgraded this month.
- Churned: Revenue lost from customers who downgraded or churned this month.
Example Calculation with Numbers:
Let’s use your example to calculate MRR for a SaaS company:
- Existing Customers:
- 150 customers paying $50 each per month.
- So, Existing MRR = 150 customers × $50/customer = $7,500.
- New Customers:
- 10 new customers at $60 each per month.
- New MRR = 10 customers × $60/customer = $600.
- Upgrades (Expansion MRR):
- 5 customers upgraded to $70 per month plans (from $50 plans).
- Expansion MRR = 5 customers × ($70 – $50)/customer = $100.
- Downgrades and Churns (Churned MRR):
- 3 customers downgraded to $40 plans (from $50 plans).
- 2 customers churned who were paying $50 per month.
- Churned MRR = 3 customers × ($50 – $40)/customer + 2 customers × $50/customer = $110.
- Total MRR Calculation:
- MRR = $7,500 (Existing) + $600 (New) + $100 (Expansion) – $110 (Churned)
- MRR = $8,090.
What is MRR?
Monthly Recurring Revenue (MRR) is the total predictable revenue a SaaS company expects to receive every month from its subscription-based customers. It’s a key metric that reflects the monthly income generated from active customer subscriptions.
Why is MRR Important?
MRR is essential for monitoring short-term financial health and operational stability. It helps in tracking growth, managing cash flow, and understanding the impact of customer acquisition and retention strategies on revenue.
How to Improve MRR:
- Increase Customer Base: Focus on marketing efforts to attract more subscribers.
- Reduce Churn Rate: Enhance customer service and product value to retain existing customers.
- Implement Upselling Strategies: Offer premium or additional features to existing customers.
Refine Pricing Model: Ensure your pricing strategy aligns with customer value perception and market trends.
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