Net Monthly Recurring Revenue (MRR)
Your total recurring revenue normalized to a monthly amount.
How to calculate Net Monthly Recurring Revenue
Net MRR = Retained MRR + (New MRR) + (Expansion MRR) - (Churn MRR) - (Reduction MRR)
Each of the elements are accounted for the same time period. Here’s how we break it down:
- Retained MRR: any retained (“old”) revenue from previous months/periods.
- New MRR: value of any new accounts added over the time period.
- Expansion MRR: value of any accounts that upgraded or expanded over the time period.
- Churn MRR: value of any accounts that cancelled during the time period.
- Reduction/Downgrade MRR: value of any accounts that downgraded during the time period.
Regardless of the time frame you choose for which to calculate these values, for calculating a monthly recurring revenue amount, each amount should be normalized to a monthly value. That means that if a customer pays on a yearly basis, you divide their value by 12; if they pay on a quarterly basis, divide the value by 4.
Once you are able to calculate your net MRR, you can (and should!) also track each of the parts that go into your net MRR in their own metrics: new, expansion, churn, and reduction MRR.
Your industry or your individual company may not have all of these options. If you only offer one pricing for subscription, simplify the calculation to account for that and any churn you may have.
How much recurring revenue are you accumulating each month?
Net monthly recurring revenue can vary dramatically between industries. Regardless of your industry, however, net MRR should be an indicator of your business’s health and growth.
Why does net MRR matter?
Financial forecasting. One nice thing about recurring revenue is that it repeats. (Hence, “recurring.”) This lets you make accurate financial predictions for your company. As you gain more revenue over time, you’ll be able to set up a model for where you’ll be in x amount of time.
Measuring growth. Tracking revenue is critical to know how well your business is doing. This is a good health score to investors---not only to see if you are generating revenue, but how much you are growing month over month.
What to watch out for
Different pricing subscriptions/contracts. If you have contracts at different prices or time frames (i.e. monthly vs. annual or quarterly contracts), make sure you normalize those to a monthly amount. For example, if a customer has a subscription at $1,000 per quarter, you’ll want to divide that by 3 in order to get the value for each month (of 3) within that quarter.
Don’t include one-time payments or trials. Since these are not “recurring,” they shouldn’t be included in your calculation. Once you close a deal on a trial, then you can add their contract value into your MRR.
Be careful of discounts. If you offer discounted pricing for a customer, make sure you calculate how much that customer is actually paying, not the full, un-discounted amount.
Net MRR Example
Company Awesome measures out the following values for each of their MRR categories:
- Retained MRR: $25,000
- New MRR: $5,000
- Expansion MRR: $2,000
- Churned MRR: $4,000
- Reduction MRR: $1,250
Net MRR = 25000 + 5000 + 2000 - 7000 - 1250 = $26,750
Company Awesome’s Net MRR for this month is $26,750.
How to influence net MRR
Remember your expansion MRR. One powerful way to increase your net MRR is to help your customers to upgrade to a higher pricing plan. Consider the possibility of adding or adjusting different plans to give customers an incentive to stay---and to bring in more revenue to your business.
Discuss reducing churn. Consider ways that you can reduce churn. How can you improve your product so people want to stay longer?
Industry Specifics for Net MRR
Net MRR for eCommerce
- In eCommerce, net monthly recurring revenue is less relevant, since eCommerce revenue is not usually recurring. That doesn’t mean you shouldn’t be tracking your revenue! It will just look a little different because a customer is not necessarily paying your a subscription fee every time they return.
- If you do have subscription billing for your company, Lemonstand says that the two most important things are to look at retaining subscriptions and gaining new subscriptions. With retaining subscriptions, make sure you know what a normal churn rate is for your industry before coming up with initiatives to reduce churn.
Net MRR for SaaS
- Monthly recurring revenue is one reason so many startups go into SaaS: it provides a base and a forecast for growth and continuing revenue.
- Net MRR is a critical metric for those who are investing in your company. It shows how much you are growing, as well as how much churn your company has. Consider tracking expansion MRR, new MRR, churned MRR and downgrade MRR month over month as individual metrics. This way, you can get both the holistic view as well as a detailed one.
Net MRR for Startups
- Tracking your net MRR in a startup is critical. But don’t just be satisfied with amorphous “growth”---Clickverta recommends giving your billing team a concrete goal to work towards. That allows teams in your organization to plan and view the pipeline---how many opportunities/sales qualified leads it will take to close a deal, and how many to reach the goal.
- Once you have a customer base, nurture your customers. Why are they getting value out of your product, and what could be improved?
Net MRR for Marketing Agencies
- TapClicks suggests a number of ways to help marketing agencies increase their MRR. Consider how you could partner with other agencies to provide comprehensive services to your clients, or set up workflow automation to track your customers’ needs.
Add a Net MRR metric tile to your dashboard!
Who drives Net MRR. VP of Sales.
Net MRR chart type(s).
- Stacked Column
- Stacked Bar
- Stacked column + Line
- Stacked column/bar: Amounts added and lost (churned)
- Line: Percentage retained
- Quarter-to-date (QTD)
- Year-to-date (YTD)
- Year-to-date (YTD)
- Quarter-to-date (QTD)
Key Value. Total Net MRR QTD
Comparison Value. Net MRR Last QTD
Data Source(s) for tracking Net MRR
- Google Analytics
Questions about Net MRR? Email us at firstname.lastname@example.org or chat in on the site.