Last updated on August 20th, 2024 at 07:10 am

Have you ever scratched your head, wondering how some companies seem to have a never-ending stream of cash pouring in every single month?

Let me introduce you to their secret sauce – Monthly Recurring Revenue, or MRR for short.

Picture your Netflix subscription, a simple model where you pay the same amount each month for a continuous service.

Now apply that concept to businesses, and voilà, you have MRR!

It’s like that faithful friend who shows up without fail, month in and month out, ensuring a steady income for the company.

But hang on a minute, you might be questioning – isn’t this just another word for sales?

Here’s the scoop: sales are transactions where goods or services trade hands for money, but the cash flow can be unpredictable. MRR, on the other hand, is about reliability.

It’s not just about making money; it’s about making the same money at the same time every single month.

For B2B SaaS companies – yeah, those snazzy operations that offer software on a subscription basis – MRR is their bread and butter.

It’s like having a crystal ball, giving them the power to forecast future earnings, track growth, and make smart, strategic choices.

Plus, it provides the stability needed to sleep well at night, knowing what their financial landscape will look like.

Now, how about we delve a bit deeper into this MRR magic?

Ready to see why it’s such a big deal for businesses and how it might even be a game-changer for yours?

Grab your coffee, and let’s explore the ins and outs of recurring revenue together.

What is Monthly Recurring Revenue in Simple Terms?

Monthly Recurring Revenue (MRR) is the predictable income a business earns every month from its customers.

Think of it as the steady paycheck a business gets from its subscribers.

For B2B SaaS businesses, this means the money they receive from companies using their software every month.

For example, if your business provides a project management tool that other companies pay for each month, all those payments add up to your MRR.

This consistent income is the recurring revenue generated by the business.

This consistent revenue helps businesses plan their budgets, invest in growth, and keep track of how well they’re doing, hence why its such an important B2B marketing term to learn.

It’s like having a reliable stream of income that you can count on to keep things running smoothly.

Why is Monthly Recurring Revenue Important in B2B SaaS?

B2B SaaS businesses should start paying more attention to Monthly Recurring Revenue (MRR) because it’s a key indicator of financial health and growth potential.

Understanding MRR helps these companies make better decisions, plan for the future, and keep their businesses stable.

Comparing MRR with annual recurring revenue (ARR) is crucial, as ARR provides a macro-level view of a company’s revenue health, profitability, and growth potential within a recurring revenue model.

Here are three reasons why you should look more into it:

1. Predictable Income

MRR provides a steady stream of income that businesses can count on each month.

This predictability makes it easier to plan budgets, allocate resources, and make informed decisions.

MRR is determined by multiplying the number of active accounts or monthly users by the average monthly revenue per account or user.

Knowing you have a reliable income lets you invest in growth and development without worrying about sudden drops in revenue.

2. Customer Retention Insights

Tracking MRR helps you understand customer retention and churn rates.

Churn MRR is the total revenue lost due to subscription cancellations and downgrades within a specific month, impacting overall monthly recurring revenue (MRR) and highlighting areas that need improvement.

A stable or growing MRR indicates that customers are sticking around and finding value in your product.

If MRR drops, it signals that you need to address issues causing customers to leave.

Keeping an eye on MRR helps you continuously improve your product and customer service.

3. Attracting Investors

Investors love MRR because it shows consistent growth and stability.

High MRR suggests that your business has a solid customer base and predictable revenue streams, making it a safer investment.

Net new MRR is crucial for understanding monthly revenue changes, as it incorporates new, expansion, and churned MRR, highlighting its role in measuring revenue growth or loss and attracting investors.

Demonstrating strong MRR can help you secure funding to expand your operations and scale your business.

By focusing on MRR, B2B SaaS companies can better manage their finances, retain customers, and attract investors, setting themselves up for long-term success.

How Do You Calculate Monthly Recurring Revenue?

Calculating MRR can be boggling at first. You might get lost in all the numbers and details.

That’s normal. But it also doesn’t have to be like that.

If you focus on the right variables, figuring out your B2B SaaS business’s MRR gets much easier.

By breaking it down into simple steps, you’ll see it’s not as complicated as it seems.

Let’s jump in and learn how to calculate MRR, the process of determining monthly recurring revenue for SaaS businesses, so you can better understand your business’s financial health.

Let’s begin with the needed formula:

MRR = Average Revenue Per User (ARPU) x Number of Users

Now, let’s explain each variable:

• Average Revenue Per User (ARPU): This is the average amount of money each user pays you per month.
• Number of Users: This is the total number of users who subscribe to your service.

Now, let’s use this formula as a simple example.

Step-by-Step Process

1. Find the ARPU: Suppose each subscriber pays $20 per month. This $20 is your ARPU.
2. Count Your Paying Customers: Let’s say you have 150 paying customers. The total number of paying customers is crucial as it directly impacts your MRR.
3. Use the Formula: Plug these numbers into the formula. With the identified variables, your formula is going to look like this: MRR = $20 x 150
4. Calculate the MRR: Multiply $20 by 150 to get $3,000.

Your monthly recurring revenue (MRR) is $3,000.

This is calculated by multiplying the average revenue per user (ARPU) by the total number of paying customers.

That means you can count on earning $3,000 every month from your current subscribers.

Keeping track of this shows how steady your income is and helps you plan for growth.

Isn’t it easy to figure out your MRR?

What Is A Good Monthly Recurring Revenue?

A good Monthly Recurring Revenue (MRR) growth rate typically falls between 10% and 20%, depending on the stage and size of your business.

For established SaaS companies, an MRR expansion rate of around 16-20% is considered excellent.

Expansion MRR reflects satisfaction and loyalty among customers, as it indicates additional revenue generated from existing customers through upgrades, upsells, or cross-sells.

However, even maintaining a steady MRR growth rate of 10-15% is commendable and crucial for long-term success.

Here are some insights from various sources:

• Maxio: “Many SaaS companies will aim to generate between 10 and 15% MRR expansion growth.” (Source)
• Consero Global: “A Net MRR growth of 10-20% is good by industry experts.” (Source)
• Userpilot: “Industry experts recommend that SaaS and subscription-based startups aim for a 10-20% net MRR growth rate.” (Source)

Simply put, a good Monthly Recurring Revenue (MRR) growth rate is between 10% and 20%.

For long-term success, keep your MRR within this considered ‘good’ range.

What Are The Benefits of Tracking MRR?

Keeping track of your MRR, including other essential marketing metrics, is super important for your business’s success in the long run.

It’s not just some vanity metric—it really helps you grow and scale your operations.

Let’s dive into the benefits of watching your MRR closely:

1. Predictable Income: Understanding your MRR enables you to forecast your future income with greater accuracy. This predictability is invaluable for creating effective financial plans and budgets. When you know what to expect in terms of revenue, you can make informed decisions about investments, hiring, and expanding your services, leading to more strategic growth.
2. Growth Tracking: MRR serves as a clear indicator of how well your business is growing over time. It allows you to assess metrics like customer acquisition rates—are more customers signing up each month? Additionally, it helps you evaluate whether existing customers are upgrading their subscriptions or plans. This insight is essential for understanding your business trajectory and making necessary adjustments to your strategy.
3. Identifying Trends: By diligently tracking MRR, you can identify trends that may affect your business. For instance, are there certain months where revenue experiences a noticeable dip? Recognizing these patterns helps you take proactive measures to address potential issues, whether that means ramping up marketing efforts or offering promotions during slower periods to boost revenue.
4. Investor Appeal: Investors are always on the lookout for businesses with steady and reliable MRR. A consistent revenue stream demonstrates that your business has a sustainable model and is capable of generating income over time. This stability makes your business a more appealing and safer investment option for potential backers, increasing your chances of securing funding.
5. Customer Retention: Monitoring MRR also provides insights into customer behavior. Are your customers sticking around or are they churning? Understanding these dynamics allows you to tailor your services to meet their needs better, ultimately helping you improve customer satisfaction and loyalty. By focusing on retention, you can enhance the lifetime value of your customers and ensure a healthier revenue flow.

Can you see how tracking MRR can drive your business forward?

By using these insights, you can make smart choices that help your business grow and protect it from market ups and downs.

What decisions will you make to strengthen your business?

What Is The Difference Between Monthly Sales and Monthly Revenue?

Let’s break down the difference between monthly sales and monthly revenue.

Sales is the total amount of money a business makes from selling its products or services.

For example, if you sell 100 meal plans at $10 each, your sales for the month are $1,000.

Sales show how much you’re bringing in from what you sell.

Revenue, on the other hand, includes all the money your business earns.

This can be from sales but also from other sources like subscriptions, memberships, or even interest from investments.

So, if you make $1,000 from selling meal plans and another $500 from monthly subscriptions, your total revenue would be $1,500.

Understanding the difference helps you see where your money comes from.

Is Revenue The Same As Profit?

Profit is the money a business keeps after paying all its costs.

These costs include things like rent, salaries, supplies, and more.

Think of profit as your “take-home” money after all bills are paid.

Revenue, on the other hand, is the total money a business makes from selling products or services.

It’s the income before any costs are subtracted. Revenue shows how much money comes in but not how much you keep.

So, if you make $5,000 from sales in a month (that’s your revenue) and your expenses are $3,000, then your profit is $2,000.

Profit tells you how well you’re doing after covering all the costs.

Why MRR Is Your Business’s New BFF

Alright, let’s bring it home!

We’ve been chatting about Monthly Recurring Revenue (MRR), and by now you’re probably thinking, “Okay, I get it, it’s important.”

But here’s the thing – it’s not just important, it’s like your business’s secret weapon!

Think about it:

• Want to peek into the future of your revenue? MRR’s got your back.
• Need to make some big decisions? MRR whispers sweet nothings of wisdom in your ear by helping you understand the recurring revenue generated.
• Trying to keep your customers around? MRR helps you spot who might be eyeing the exit.
• Wondering where to put your money and effort? MRR’s like a financial GPS.
• Curious if your business is as healthy as that kale smoothie you had this morning? MRR’s got the lowdown.

But here’s the real tea: MRR isn’t just about cold, hard cash.

It’s about building relationships with your customers that last longer than most Hollywood marriages.

When you focus on growing your MRR – whether that’s by snagging new customers, upgrading your current fans, or keeping people from ghosting you – you’re setting yourself up for the long haul.

Just remember, MRR is like the lead singer of your metrics band.

It’s important, sure, but it needs its backup singers like Customer Lifetime Value, Customer Acquisition Cost, and churn rate to really make the music happen.

So, what do you say?

Ready to make MRR your new business bestie?

Trust me, it’s a friendship that’ll pay off big time!

P.S. Hungry for more business brain food?

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We’ve got everything from digital marketing tricks to business hacks and mindset shifts that’ll make your entrepreneurial spirit soar.

So come on, take a bite out of success and keep that learning train chugging!