Monthly recurring revenue
Monthly Recurring Revenue is a predictable income generated from an established customer base in any given month.
Monthly Recurring Revenue (MRR) is a critical metric for understanding the financial health and long-term prospects of subscription-based businesses, such as eCommerce SaaS providers, media subscription services, or any service with a subscription model. Simply put, it's the income predictable every month from the cumulative total of all subscriptions. Unlike one-time sales, MRR provides a steady, predictable cash flow to maintain and grow your business over a longer time span.
Formula
Monthly Recurring Revenue (MRR) = Number of paying customers * Average Revenue Per User (ARPU)
Example
Let's say Streaming Service A has 10,000 subscribers, each paying $10 per month. Its MRR would be $100,000.
Why is MRR important?
Monthly recurring revenue allows businesses to understand their financial health rapidly, track growth over time, and predict future revenue. It helps in planning budgets, forecasting growth, understanding the impact of customer acquisition, and adjusting pricing models. Since it provides a clear picture of how much revenue can be expected every month, it provides a solid ground for further business decisions.
Which factors impact MRR?
Some of the significant factors impacting Monthly recurring revenue are customer churn rate, new customer acquisition, upsells or cross-sells, and changes in pricing. An increase in customer churn will decrease MRR, while acquiring new customers or successfully upselling or cross-selling can increase it.
How can MRR be improved?
Increasing the average revenue per user (ARPU), adding more customers, and reducing customer churn are three ways to improve Monthly recurring revenue. Upselling and cross-selling to existing customers can help increase ARPU, while effective marketing strategies can attract new customers. Moreover, improving the product or service quality, and providing excellent customer support can reduce customer churn.
What is MRR's relationship with other metrics?
Monthly recurring revenue has strong ties to other e-commerce metrics. It influences the Customer Lifetime Value (CLTV) since more MRR, with lower churn rates, will lead to higher CLTV. It’s also impacted by Customer Acquisition Cost (CAC) as acquiring new customers can increase MRR. Moreover, MRR improvement over time is a strong indicator of business growth and success.
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