Everything You Need to Know About Monthly Recurring Revenue (MRR)

Whether you're a sales leader, manager, or rep, metrics are key to your success. They help you evaluate the performance of the business, team, and individual contributors.

Let's say you're preparing for a meeting with your VP of Sales. In this meeting, you need to provide an update on your sales team's achievements. If you're looking at the surplus of dashboards and reports in your CRM database, all the charts, numbers, and percentages can be overwhelming.

Which sales metrics reflect the largest business impact? Are there certain ones you should prioritize?

One metric that you should analyze is monthly recurring revenue (MRR). It tells you and your VP how much income is generated each month. Not only can you look at revenue trends over time, but you can also compare MRR to the monthly sign up rate for your product or service, monthly account growth rate, and customer retention.

An MRR analysis will tell you if your revenue is shrinking or growing over time, plus, it informs sales leaders so they can make educated business decisions.

What Is MRR?

MRR stands for monthly recurring revenue. It's a normalized measure of a business' predictable revenue that it expects to earn each month. For example, if you have 10 customers and they pay you $50 per month, your MRR would be $500.

Before we get started, let's define some terms.

· Revenue: The income your business earns in return for the sales of goods and services.

· Recurring Revenue: This is the income you can expect to earn on a regular basis. Recurring revenue can be measured on a monthly or yearly basis (e.g., MRR: monthly recurring revenue, ARR: annual recurring revenue).

So, what does MRR look like in practice?

Picture this: You work for a cloud computing company that sells a cloud photo storage platform. Customers sign a contract for a yearly subscription and they pay a monthly fee to use the photo storage service.

Let's say the client has agreed to pay $1,200 per year, and based on their purchase you can expect to earn $100 ($1,200/12 months) in income each month. The monthly recurring revenue (MRR) for this customer is $100.

Once you've calculated the MRR for each customer, you can calculate the total MRR for your business.

MRR Formula