In this article, we'll take a closer look at the definition of recurring monthly income (RMI). We'll also look at why it's important. Then we'll look at the different types of MRO that companies can track.
We will also provide a step-by-step guide to calculating the MRA and Net New MRA. We'll then explain the difference between MRA and Annual Recurring Revenue (ARR). Finally, we'll suggest strategies for increasing your ARR.
Whether you're a subscription business looking to optimise your revenue streams or an investor wanting to understand a company's growth potential, read on to find out more about MRO.
Definition of monthly recurring revenue (MRR)
Monthly recurring revenue (MRR) is a financial indicator that measures the predictable and recurring revenue generated by a company's products or services each month. MRR is generally used by companies that offer recurring services on a subscription basis. For example, software-as-a-service (SaaS) companies. It can also be used by companies that sell products with recurring revenue streams (maintenance or support contracts).
The MRR is an important indicator for businesses. It shows how much predictable revenue a company can expect to generate each month.
This predictability is important for companies that rely on recurring revenue streams. It enables them to better forecast their financial performance and plan for future growth. MRS is also useful for measuring a company's overall health and performance.
By tracking the evolution of MRO over time, companies can identify trends and areas for improvement.
Quick example Your service costs €100 a month and you have 500 customers. Your recurring monthly income is therefore €50,000. You can find more calculations below.
Why is MRS important?
Monthly recurring revenue (MRR) is important for businesses for a number of reasons:
- Predictable revenue streams MRO provides businesses with predictable revenue streams that they can rely on each month. This is particularly important for subscription-based businesses that rely on recurring revenues to maintain their operations.
- Financial forecasts By following the MRS, companies can better forecast their financial performance. As a result, they can better plan for future growth. As a result, they can make more informed decisions about hiring, investment and resource allocation.
- Performance measurement MRR: MRR is a useful indicator for measuring the overall health and performance of a business. By tracking MRR over time, companies can identify trends and areas for improvement. For example, if MRR is falling, this may indicate that customers are cancelling their subscriptions or that the company is having difficulty acquiring new customers.
- Company valuation MRR: MRR is also an essential indicator for companies looking to raise funds or sell their business. Potential investors or buyers will look at a company's recurring monthly income to determine its revenue potential and growth prospects.
- Customer lifetime value (CLTV) MRO is closely linked to customer lifetime value (CLTV). By tracking MRR and understanding how it is influenced by customer acquisition, retention and expansion efforts, companies can better understand their CLTV and identify ways to increase it.
The different types of recurring monthly income
New MRR
This type of MRR represents the turnover generated by new customers who have recently subscribed to a company's products or services. New MRR is important for companies focusing on growth and customer acquisition. It provides an indication of the success of their sales and marketing efforts.
Expansion MRR
Expansion MRR represents the additional revenue generated by existing customers who have upgraded their subscription or added new products or services to their existing subscription. This MRR is important for companies that focus on customer retention and increasing lifetime value.
Unsubscribe MRR
Churn MRR represents the revenue lost due to customer cancellations or downgrades. Churn MRR is essential for companies seeking to reduce churn and improve customer satisfaction.
How do you calculate the MRR?
It's very simple to calculate the MRR. Here is the formula:
With : ARPU, average revenue per user.
For example, if a SaaS company has 1,000 active subscriptions with an average revenue per user of €50, its MRR will be €50,000 (1,000 subscriptions x €50 ARPU).
It is essential to note that MRR can be affected by changes in the number of active subscriptions, changes in ARPU, or a combination of the two. Companies should therefore regularly monitor and analyse changes in these two indicators in order to better understand their MRR and overall financial performance.
How do you calculate the new net PPA?
This is an indicator used to track the growth in a company's recurring revenue streams from new customers or upgrades. All this while taking into account revenue losses due to customer attrition or downgrades. The formula for calculating net new monthly recurring revenue is as follows:
This gives the net total monthly recurring revenue generated by new customers or upgrades. This also takes into account revenue losses due to the loss of customers or downgrades.
For example, let's assume that a SaaS company has recorded the following variations in MRR over the course of a month:
- New MRR: €10,000
- Expansion MRR: 5,000
- Unsubscribe MRR: 2,000
To calculate the new net MWA, we will use the following formula:
Net new MRR = New MRR + MRR Expansion - MRR Churn Net new MRR = €10,000 + €5,000 - €2,000 Net new MRR = €13,000
As a result, the company's net new MRR for the month would be €13,000. This indicates that the company generated €13,000 in new recurring revenue during the month. All this taking into account revenue losses due to customer attrition or downgrades.
What is the difference between MMR and ARR?
Monthly recurring revenue (MRR) and annual recurring revenue (ARR) are both used to measure a company's recurring revenue streams. However, they differ in the period over which they are calculated.
By way of introduction, MRR is the revenue generated each month by a company's subscription-based products or services. It is generally used by companies offering monthly subscription plans. It is calculated by multiplying the total number of active subscriptions by the average revenue per user (ARPU). It also gives companies a more granular view of their recurring revenue streams. It allows them to track revenue trends on a monthly basis.
ARR is the revenue generated by a company's subscription-based products or services over the course of a year. It is generally used by companies offering annual subscription plans. It is calculated by multiplying the total number of active subscriptions by the price of the annual subscription. This type of revenue gives companies a longer-term view of their recurring revenue streams. It also makes it possible to monitor revenue trends on an annual basis.
Of course, companies can convert MRR into ARR by multiplying MRR by 12. They can also convert ARR into MRR by dividing ARR by 12.
You can also watch this explanatory video. It is in English but French subtitles are available 👇:
How can you increase your recurring monthly income?
There are a number of strategies that companies can use to increase their monthly recurring revenue (MRR). Here are a few examples:
Raising prices
One of the easiest ways to increase monthly recurring revenue is to increase prices. However, it is important to ensure that the increased prices remain competitive and deliver value to customers.
Up-selling and cross-selling
Encouraging existing customers to increase their subscriptions or purchase additional products or services can help to increase the rate of sales growth. This can be achieved through targeted marketing campaigns and personalised recommendations based on customer behaviour.
Reduce churn
Reducing churn can help businesses retain their existing revenue streams. It also avoids the need to acquire new customers to compensate for lost revenue. This can be achieved by improving customer service and support, adding value to customers and responding to their concerns in a timely manner.
Improve customer acquisition
Acquiring new customers is key to increasing MRR. Companies can improve customer acquisition by optimising their marketing and sales processes, targeting the right audience and offering an exceptional customer experience.
Offer annual subscriptions
Encouraging customers to take out annual subscriptions rather than monthly subscriptions can help to increase MRR. Annual subscriptions generally offer a discount and more predictable income over a longer period.
Launch new products or new functions
Introducing new products or features that add value for customers can help to increase MRO. This can be achieved by researching customers, gathering their feedback and identifying areas where the company can differentiate itself from its competitors.
Conclusion
In conclusion, monthly recurring revenue (MRR) is a financial indicator that measures the predictable and recurring revenue generated each month by a company's products or services.
MRS is important for companies that depend on recurring revenue streams. It enables them to better forecast their financial performance and plan for future growth. By tracking MRR over time, companies can identify areas for improvement.
There are several types of MRA, including new MRA, expansion MRA and churn MRA. Companies can calculate their net ARM by subtracting the churn ARM from the new ARM and the expansion ARM.
MRR is similar to annual recurring revenue (ARR), but differs in the period over which it is calculated.
Companies can increase their MRO through strategies such as price increases, up-selling and cross-selling, or offering annual subscriptions.
By understanding and improving their MRO, businesses can achieve more predictable revenue streams. But that's not all! It also leads to better financial forecasts and better overall performance.
Don't hesitate to read our article on how to develop a successful mobile application.
Are you looking to launch a new product or develop new functionalities for your current SaaS/Application?
