By Anna Ribas, on 8 June 2023
There are many marketing metrics that let you know when a strategy is effective or not. One of these is Monthly Recurring Revenue or MRR, which is key for companies with a subscription-based business model.
Definition of Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue is the revenue that a company receives, or expects to receive, each month from its subscribers. It is the total predictable revenue generated from customers who expect to receive a product or have access to a service each month
The amount of MRR can vary depending on the number of subscribers, the different plans or rates offered, and the billing system. But knowing this data allows you to know the overall profitability of your business and its growth percentage.
How to Calculate Monthly Recurring Revenue
MRR is calculated by multiplying the monthly revenue of each subscriber by the total number of subscribers. In other words, if you have 100 subscribers and each of them pays $10, the MRR would be:
100 x 10 = $1,000
If there are different types of plans, do the same operation for each of them and then add up all the results.
When calculating the MRR, quarterly, semi-annual or annual subscriptions should not be included in the operation as if they were monthly. In addition, non-recurring revenues and free trial versions should be excluded, since the subscription has not yet been made.
Tips to Optimize Your Monthly Recurring Revenue
To increase your Monthly Recurring Revenue you can charge more for the product or service you are offering, especially when the price does not correspond to its real value. However, it's important to do so in a cautious and gradual manner or subscribers may leave.
Another way to increase MMR is to generate additional sales. Although acquiring new customers is always positive, getting existing customers to sign up for higher value plans or to purchase new products or services is even better.
It is also possible to get rid of free and unlimited plans. Although it can be a good idea to offer free trials so that customers can get to know your product or service, make sure they have an expiration date. If users can use a free version indefinitely, they will probably try to adapt to it even if it has certain limitations. In addition, unlimited plans should also be eliminated so that the conditions (like pricing) can be changed at any time.
MRR is one of the most important digital marketing metrics within a subscription-based business, since in order to make decisions, set realistic goals, and know the pace of growth, it is essential to have this data.