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Glossary – MRR (Monthly Recurring Revenue)

MRR (Monthly Recurring Revenue)

Nikiforov Alexander
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What is MRR

MRR (Monthly Recurring Revenue) is a key metric that allows you to assess the financial performance of a business, especially within subscription models. This indicator reflects the stable income that a company receives each month from its subscribers. Recently, subscriptions have become popular not only among content users, such as online cinemas and music services, but also in other sectors. For example, car manufacturers have started to implement subscription rates for certain features of their vehicles.

According to statistics, in 2023, the "VK Music" service had about 45 million users, of which more than 5 million subscribed. However, the subscription model has become most widespread in the software industry, where manufacturers prefer to offer their services in the form of SaaS (software as a service) — software is provided to users not as a product, but as a service for a specific period.

Why calculate the MRR metric

Tracking the MRR metric is an important aspect of analyzing a company's financial condition. With MRR, one can:

  • Assess the dynamics of revenue growth and the acquisition of new customers.
  • Identify problems with customer retention, which may indicate subscriber churn.
  • Forecast revenues, allowing for better planning of expenses and investments.
  • Evaluate the effectiveness of marketing strategies and their impact on revenues.

If the regular monthly revenue shows growth, it indicates positive trends in the business. Conversely, a stable or declining MRR may indicate potential problems, such as customer churn or a transition to cheaper plans.

MRR calculation formula

The basic calculation of MRR is performed using the following formula:

MRR = number of subscribers * subscription price

This formula is suitable for companies with a fixed subscription price and allows for the assessment of total income for the month. Let's consider the example of a service with three pricing plans:

  • Subscription price: 1,000 ₽, 5,000 ₽, 10,000 ₽.
  • Number of users (March): 30, 20, 10.
  • Number of users (April): 35, 25, 5.

Thus, the MRR calculation in March will be:

MRR (March) = 35 * 1000 + 20 * 5000 + 10 * 10000 = 235,000 rubles.

And in April:

MRR (April) = 35 * 1000 + 25 * 5000 + 5 * 10000 = 210,000 rubles.

As can be seen, MRR is decreasing despite an increase in the total number of subscribers, indicating a loss of customers on the more expensive plan.

Types of MRR

For a more accurate analysis of subscriptions, various types of MRR are used:

  • New MRR: income from new subscribers within the month.
  • Expansion MRR: additional income from existing customers who upgraded their plan or subscribed to paid services.
  • Churned MRR: shows how much money the company lost due to cancellations of subscriptions.
  • Net New MRR: reflects the overall income or loss over the period.

These types of MRR allow for a deeper analysis of revenue dynamics and identifying segments that yield the highest profit.

Errors in calculating the MRR metric

For accurate MRR calculation, it is important to avoid common mistakes:

  • Calculate the monthly subscription cost rather than the total revenue from the customer.
  • Use the price at the time of sale, considering possible discounts and promotions.
  • Do not include customers on a trial period.
  • Exclude overdue payments and debts from the calculation.
  • Focus solely on subscription costs, excluding one-time purchases.

By following these recommendations, you can avoid mistakes and obtain more accurate data on subscription revenues.

How to increase monthly recurring revenue

To increase MRR, companies need to focus on both acquiring new customers and retaining existing ones. Here are some strategies:

  • Conduct regular market research and gather feedback.
  • Improve service levels to make the service more user-friendly.
  • Develop several pricing plans for different price segments.
  • Motivate customers with bonuses and discounts for long-term subscriptions.
  • Utilize cross-marketing and joint promotions to attract new audiences.

An example of a successful joint promotion could be an offer from Wink and X5 Group, where users receive cashback for purchases in stores when subscribing to an online cinema. Such measures not only increase MRR but also strengthen customer loyalty.