Your MRR is critical to how well your business can bring in money. Your MRR is different from traditional revenue, as the MRR focuses on what you bring in through subscriptions or recurring transactions.
You can review your MRR if you run a business that offers subscriptions. Whether it’s a gym that offers monthly access subscriptions, a coffee house that offers coffee by mail, or anything else that provides certain products or services each month, you can benefit from reviewing your MRR and how it works.
What Is MRR?
MRR is short for Monthly Recurring Revenue. It is a measure of the revenue you generate each month through subscriptions. You can calculate your MRR by reviewing the total number of subscriptions you hold and how much you are collecting from them.
MRR is different from traditional revenue, as regular revenue entails the money you earn from basic activities minus the business costs and tax charges you spend. MRR entails the sum of all the paid subscriptions you get each month. You can emphasize the new ones you get versus the discontinued ones if you wish.
A Review of Expected Income
While traditional revenue entails the money people spend at any moment, your MRR entails the expected income your business will receive. You can review the subscriptions people hold and see what you’re bringing in to figure out what you may earn after a while.
You can use your analysis to plan a budget for your work. The budget can include anything you wish to follow, including coverage for expansion, maintenance, and other activities. Your MRR will help you review what’s coming, giving you the knowledge needed to plan many operations.
It Helps You Consider Possible Changes
Your MRR can help you see the momentum in your business. You can figure out if your business is growing or if it needs extra help moving forward.
Every business will experience some turnover when dealing with customers. The point is valid for subscriptions, as some people may no longer require whatever you provide.
Checking subscription trends is critical to helping you see how well your business runs. You can add the number of new or upgraded subscriptions and remove the cancelled or downgraded subscriptions in a month to get an idea of how well your revenue flow can change. You can use this data to figure possible trends or other concerns over how your business brings in clients.
Calculating Your MRR
You can calculate your MRR with a few steps:
- Review the types of subscription plans you have. You may have different subscriptions with varying price rates available for sale.
- Calculate how many people are subscribed to each program or tier you offer. They should be divided over how much they are spending each month.
- Multiply the number of people in one tier by the amount they will spend each month while in that tier.
- Add all the tiers you calculate together.
For example, you may have 1,000 customers who subscribe to a plan worth $6 per month, and you also have 400 customers subscribing to a high-end tier at $9 per month. You can multiply 1,000 by 6 and 400 by 9 to get 6,000 and 3,600. Add these two together, and you’ll find your MRR is $9,600.
Reviewing Your MRR Growth or Shrinkage Through Your Net New MRR
You can also review your MRR by looking at how it grows or shrinks. You can include separate calculations for things like:
- New MRR, or how many new subscriptions you get
- Expansion MRR, or how many people upgrade to higher-value tiers
- Churn MRR, a measure of who cancels their subscriptions and who stays with you but is choosing a lower-value tier instead
You can compare each month’s MRR surrounding how many people are in each tier and how these factors change. These details help you figure out what you’re doing right.
You can review your net new MRR by adding the new MRR and expansion MRR together and then subtracting the churn MRR. The value tells you if you’re gaining or losing monthly revenue.
How to Prevent Errors
While calculating your MRR is easy, it doesn’t take much to commit an error. You can do a few things to prevent errors in your report:
- Do not include any single payments in your MRR calculations.
- Do not remove payment fees or other charges from your MRR. You can move these fees and expenses in a separate category to help you see what’s changing.
- Remove all people who choose not to subscribe to something after a trial subscription ends. You can produce a separate category listing new subscriptions that stick around after their trial periods end.
- Add discounts to your MRR. Include a separate discounted rate tier for customers who might be using a special deal or may be grandfathered into an old rate they are still eligible to support.
- Record all long-term payments people make. These include annual or semi-annual payments that might provide discounts. You can separate these people from the ones that pay for things every month.
Preventing errors is critical for helping you get a more realistic look at how much revenue you’re bringing in each month. Be prepared to use as many categories and tiers as necessary. You can review how these change each month to see what offers and features people are using the most when subscribing to your work.
Watch Your MRR
Be certain when reviewing your MRR that you recognize the subscriptions you offer and how people are utilizing these features. Watch how much money people are spending, and look for possible changes in your work. Be aware of any promotions or other offers you provide, as these can include your MRR. You can use your MRR to help you plan your budget and to see how well your business is growing or if there’s an issue in how you run things at work.