MRR, the abbreviation of monthly recurring revenue, refers to the financial metric that shows how much money a business gets monthly. Monthly recurring revenue is an important metric for companies that generate revenue using a subscription-based model, for example, Netflix or Spotify.
MRR is an important metric because companies are able to make sales forecasts and design a comprehensive budgeting strategy.
There are five types of MRR:
Monthly recurring revenue can be calculated in two ways:
1.Traditional formula of MRR
This is the easiest way to calculate the company’s MRR. To obtain a monthly recurring revenue per customer, the company needs to calculate the average revenue gained from each customer and then multiply it by the number of customers. For example, if the business has 150 customers and they pay an average of 50$ the company’s MRR will be 7500$. The average revenue per customer is calculated by dividing the total revenue by the number of customers.
2.Customer-by-customer approach
This method of calculating MRR works in the case when the company has only one type of subscription or there is a small number of customers, so the total is easy to calculate. Following this approach one can simply combine the monthly payments of all customers. For example, when there are 50 subscribers who paid 25$ for the subscription, MRR will be 1250$.
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