# MRR Calculator

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users
per month
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## What is MRR?

MRR, or Monthly Recurring Revenue, is a critical metric used primarily by subscription-based businesses to measure the total predictable revenue they can expect to receive every month. This metric takes into account the revenue per user and multiplies it by the total number of customers.

MRR calculation provides insights into the average revenue per user (ARPU) and helps businesses forecast their projected MRR for future months.

For SaaS companies and other subscription models, MRR offers a clear snapshot of the company's financial health and growth potential.

Calculating monthly recurring revenue is the first step when planning a new SaaS business. It gives you perspective on the business's potential cash flows and revenue.

### Prepare forecast

Future MRR is the best predictor of future company profitability. If you own an established subscription business and have some valid data, you could easily predict your MRR for the following periods.

### Make decisions based on data.

MRR calculator will support you with introducing a new subscription model or changes in the pricing policy. Just fill out a different price and see how this could impact your future revenue.

## How to use the MRR Calculator?

The usage of this MRR calculator is pretty straightforward. However, it is important to understand all the fields correctly to prevent misinterpretation.

Subscription price

The price of your monthly subscription. You can put an average value here if you have several different subscription types.

New customers

The number of new customers you gain each month.

Churn

The average number of customers that cancel their subscription each month. For more information visit churn rate calculator.

Period

The period in months for which you wish to see the result.

The result

As a result of the calculation, you will see the value of your MRR after a given period and the total number of active customers then.

## How to calculate MRR?

1. Calculate the average monthly revenue from a single customer.
2. Find out the number of new customers you get (or plan to get) each month.
3. Estimate the number of customers that cancel the subscription each month.
4. Decide on the length of the period you wish to calculate the MRR.
5. Fill those values into the form above or substitute them with the MRR formula below.

### MRR formula

MRR = Price * NewCustomers*Months - Price*Churn*(Months-1)

Where:

• Price - the average monthly cost of the subscription
• new customers - the number of new subscriptions each month
• Churn - the number of customers who quit each month
• Months - the period you wish to calculate MRR for

## What are the most common mistakes while calculating MRR?

Although the MRR may seem like an easy concept, there are several very common mistakes investors make while calculating or interpreting its value.

• MRR is often mistaken for cash flow
• Trial subscriptions are treated as paid customers
• The monthly price is calculated incorrectly when different pricing strategies are used.

Make sure you don’t make any such mistakes while calculating MRR in order to get real results. It may have a crucial impact on your success.

## Benefits of MRR

Predictable Revenue Stream

MRR provides businesses with a clear understanding of their average monthly revenue per user, allowing for better financial planning and stability.

Growth Tracking

By monitoring MRR growth, companies can gauge their success in customer acquisition and retention strategies.

Enhanced Decision Making

With insights into projected MRR, businesses can make informed decisions about investments, expansions, or pivots.

Performance Indicator

MRR serves as a key performance indicator, helping businesses understand their market position and how their offerings resonate with subscribers.

## Limitations of MRR

Not a Cash Flow Indicator|

While MRR is a valuable metric, it doesn't necessarily represent the cash flow, as it doesn't account for one-time payments or non-recurring expenses.

Variance in Subscription Models

Different subscription tiers or promotional offers can skew the average revenue per user, making MRR calculation complex.

Over-reliance

Solely depending on MRR without considering other metrics like churn rate or customer lifetime value can provide an incomplete picture of a business's health.

## MRR vs. ARR

While MRR focuses on the average monthly revenue, ARR (Annual Recurring Revenue) provides a broader view by projecting the yearly revenue from recurring subscriptions. Both metrics are vital for subscription-based businesses, but while MRR offers a more immediate snapshot, ARR gives a long-term perspective.

For instance, a company might have a strong MRR growth rate in a particular month, but its ARR could provide insights into the overall yearly trend, ensuring that short-term spikes don't overshadow the bigger picture.

Segmented MRR

Segmented MRR dives deeper into the revenue components of your subscription business, allowing for a more granular understanding of where your monthly recurring revenue is coming from. Instead of looking at MRR as a single figure, segmented MRR breaks it down into various categories, providing insights into specific aspects of your business.

1. New MRR: This represents the MRR added from new customers acquired during a particular month. For SaaS businesses, tracking new MRR can offer insights into the effectiveness of marketing and sales campaigns.

2. Expansion MRR: This is the additional MRR gained from existing customers who have upgraded their subscription plans or purchased additional services. It's a positive sign of customer satisfaction and product value.

3. Contraction MRR: This is the lost MRR from existing customers who have downgraded their subscription plans or reduced their service usage. It's essential to monitor contraction MRR closely, as it can indicate issues with product fit or customer satisfaction.

4. Churned MRR: This represents the MRR lost due to customer churn, i.e., customers who have canceled their subscriptions entirely. A high churned MRR is a red flag for SaaS MRR, indicating potential problems with the product, customer service, or market fit.

5. Reactivation MRR: This is the MRR gained from customers who had previously churned but have now returned and reactivated their subscriptions. It's a testament to the business's ability to address concerns and win back trust.

By segmenting MRR, businesses can get a clearer picture of their annual revenue trajectory, understand the reasons behind fluctuations in their MRR, and make informed decisions to optimize their SaaS MRR. It also helps in pinpointing specific areas of concern, such as customer churn, and taking proactive measures to address them.

## Factors Affecting MRR

Customer Acquisition
The rate at which a business gains new subscribers directly impacts its MRR. Effective marketing and sales strategies can boost this rate.

Churn Rate
The number of subscribers who cancel their subscriptions can significantly affect the MRR. A high churn rate can offset any gains from new customer acquisition.

Pricing Changes
Any alterations in subscription pricing, whether discounts, promotions, or hikes, can influence the average monthly revenue per user and, by extension, the MRR.

Existing customers moving between different subscription tiers can alter the MRR calculation.

Seasonal Trends
Some businesses might experience seasonal spikes or drops in their subscriber count, affecting their MRR.

## Real-Life Example: Using MRR Calculation to Decide on Subscription Pricing

Imagine a company named "StreamFlix," a popular online streaming service. After a year of steady growth, StreamFlix is contemplating a price adjustment. Their primary goal is to maximize overall revenue without significantly impacting the subscriber base.

Initial Data:

• Current Subscription Price: \$10/month
• Current MRR: \$500,000 (from 50,000 subscribers)
• Churn Rate: 3% per month

Scenario 1: Increasing the Subscription Price StreamFlix is considering increasing the subscription price by 20%, making it \$12/month. They predict that this might increase the churn rate to 5% due to the price hike.

MRR Calculation Post Price Increase:

• New Subscribers: Assuming they gain 5,000 new subscribers in the next month.
• Churned Subscribers: 5% of 50,000 = 2,500
• Total Subscribers after Churn: 50,000 + 5,000 - 2,500 = 52,500
• Projected MRR: 52,500 subscribers x \$12 = \$630,000

Scenario 2: Decreasing the Subscription Price Given the competitive market, StreamFlix is evaluating a significant price decrease to \$5.99/month. They predict that this substantial reduction will not only decrease the churn rate to 1% but also attract a larger number of new subscribers due to the highly competitive price.

MRR Calculation Post Price Decrease:

• New Subscribers: Assuming they gain 12,000 new subscribers due to the attractive price.
• Churned Subscribers: 1% of 50,000 = 500
• Total Subscribers after Churn: 50,000 + 12,000 - 500 = 61,500
• Projected MRR: 61,500 subscribers x \$5.99 = \$368,485

Analysis: From the above calculations:

• Increasing the price could lead to an MRR of \$630,000.
• Decreasing the price to \$5.99 might result in an MRR of \$368,485, but with a significantly larger subscriber base.

• Point 1: Original Price (\$10) - \$500,000
• Point 2: Higher Price (\$12) - \$630,000
• Point 3: Lower Price (\$5.99) - \$368,485

Decision
While the higher price results in a greater MRR, the lower price of \$5.99 brings in more subscribers, which could be beneficial for StreamFlix in the long run. A larger subscriber base can lead to increased word-of-mouth marketing, higher ancillary sales (like merchandise or premium content), and a more dominant market position.

Thus, StreamFlix needs to weigh the immediate financial benefits of a higher MRR against the long-term strategic advantages of a larger subscriber base. (Tip. Calculate this scenario for a longer period to see the outcome in the long term)

This example demonstrates how MRR calculations, combined with predictions on subscriber behavior and strategic considerations, can guide businesses in making holistic pricing decisions.

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### Authors

Created by Lucas Krysiak on 2022-07-14 17:13:40 | Last review by Mike Kozminsky on 2024-02-11 12:00:02