Monthly Recurring Revenue (MRR) is the total monthly value of a subscription. While ARR measures the amount of predictable and recurring revenue a company can expect over the course of a year, MRR measures the recurring revenue in a single month. For companies that offer a monthly subscription, MRR is often more appropriate than ARR.
What is MRR?
Let’s take a look at a list of products that were purchased from a customer and calculate ARR:
How do I calculate MRR?
Let’s look at a few examples on how to calculate MRR in different cases:
For a one year contract with no expansion or contraction, MRR would equal the revenue from that customer for the month. If we have a customer that bought a subscription for $800 MRR in January, we can represent the MRR in the following way:
In each month, we expect $800 of monthly recurring revenue. Similarly, we could also describe this as $9,600 ARR ($800 MRR per month x 12 months = $9,600 ARR).
If there is expansion or contraction, MRR reflects the revenue that would be received if the most recent version of the contract continues for another month. Let’s start with the same customer from above but add in an MRR downsell in March and an MRR upsell in July - we can represent MRR in the following way:
With the $200 MRR downsell in March, the MRR decreased to $600. With the $600 MRR upsell in July, the MRR increased to $1,200. Note that in both cases, MRR is the forward-looking expectation of revenue for the next month, and always reflects the most recent contract.
When should I use MRR instead of ARR?
For organizations with subscriptions that are month-to-month, MRR is generally more appropriate to describe the total monthly revenue expectation for a particular customer. For longer contracts, ARR might be more appropriate to see the total annual revenue expectation. Furthermore, ARR is not always 12 times MRR, and can be different due to variable pricing, non-annual contracts, discounts, and prepayments
How much MRR should I have?
While ARR benchmarks vary by industry and company age, there are some general targets for MRR and growth rates to consider. The table below details some benchmarks for MRR, YoY (Year over Year) Growth, and CMGR (Compound Monthly Growth Rate):
SaaSGrid calculates MRR by working directly with your data systems. Use SaaSGrid to discover what segments, products, and industries drive your sales growth and see where you're winning customers. Talk to us here and see how we can help you with insights into MRR and more!
