Measuring Monthly Recurring Revenue: SaaS Metrics & KPIs

In the world of Software as a Service (SaaS), Monthly Recurring Revenue (MRR) is a key metric that is used to measure the financial health of a business. MRR is a measure of the predictable revenue that a SaaS company expects to earn each month from its subscribers. Understanding MRR is essential for any SaaS company looking to grow and scale.

Overview of Monthly Recurring Revenue (MRR) in SaaS

MRR is a core metric used in SaaS businesses to measure revenue predictability and growth. It is a measure of the subscription revenue that a company expects to receive each month from its customers. This metric is especially important for SaaS businesses, as they rely on recurring revenue from their subscribers to sustain their operations and fund growth.

MRR allows SaaS companies to forecast revenue with greater accuracy and make strategic decisions based on that data. It is a critical metric for monitoring growth, setting pricing strategies, and planning budgets. Understanding how to measure, calculate, and grow MRR is essential for any SaaS business looking to succeed.

What is Monthly Recurring Revenue (MRR)?

Monthly Recurring Revenue (MRR) is a crucial metric for Software as a Service (SaaS) businesses. It refers to the predictable revenue that a company can expect to receive each month from its subscribers. In other words, it is the total amount of revenue that a business generates from its monthly subscriptions.

Definition of MRR

MRR is calculated by multiplying the number of paying subscribers by the average monthly subscription fee. The resulting figure is the company's MRR. It is important to note that MRR only includes recurring revenue from active subscribers and does not include one-time payments or revenue from inactive subscribers.

Why is MRR important for SaaS?

MRR is a critical metric for SaaS businesses because it represents the company's revenue stream. It provides a clear and predictable picture of the company's income and allows the company to forecast future revenue. By tracking MRR over time, companies can identify trends and make data-driven decisions about their pricing, marketing, and sales strategies.

MRR is also a key performance indicator (KPI) for SaaS businesses. It is used to measure revenue growth, customer retention, and the overall health of a business. By analyzing MRR, companies can identify areas for improvement and make adjustments to their business model to increase revenue and profitability.

In summary, MRR is a fundamental metric for SaaS businesses. It provides a clear picture of the company's revenue stream and is used to measure revenue growth, customer retention, and the overall health of the business.

How to Calculate MRR

MRR is a critical metric for SaaS businesses as it helps in determining the recurring revenue generated by customers. There are two ways to calculate MRR, namely Simple MRR Calculation and Complex MRR Calculation.

Simple MRR Calculation

The Simple MRR Calculation is used when the subscription plan and billing amount of each customer are the same. To calculate Simple MRR, you need to multiply the number of customers by the subscription fee. For example, if a SaaS company has 100 customers, each paying $50 per month, the Simple MRR Calculation would be:

Simple MRR = Number of Customers x Subscription Fee

Simple MRR = 100 x $50

Simple MRR = $5,000

Complex MRR Calculation

The Complex MRR Calculation is used when the subscription plan and billing amount of each customer are different. To calculate Complex MRR, you need to add the subscription fees of all customers. For example, if a SaaS company has three subscription plans, and the number of customers and the subscription fee for each plan are as follows:

Subscription Plan	Number of Customers	Subscription Fee
Plan A	20	$50
Plan B	30	$100
Plan C	50	$150

The Complex MRR Calculation would be:

Complex MRR = (Number of Customers for Plan A x Subscription Fee for Plan A) + (Number of Customers for Plan B x Subscription Fee for Plan B) + (Number of Customers for Plan C x Subscription Fee for Plan C)

Complex MRR = (20 x $50) + (30 x $100) + (50 x $150)

Complex MRR = $5,000 + $3,000 + $7,500

Complex MRR = $15,500

MRR Growth

As the lifeblood of any SaaS business, Monthly Recurring Revenue (MRR) is a key metric that indicates the sustainability and growth potential of the company. However, simply achieving a good MRR is not enough: it is important to maintain consistent growth to ensure the long-term viability of the business.

MRR Growth Rate

The MRR Growth Rate is a measure of the percentage by which MRR has increased or decreased over a given period of time. A healthy MRR Growth Rate is essential for SaaS businesses to continue to attract investors, as well as to maintain momentum in the marketplace.

To calculate the MRR Growth Rate, it is necessary to track the MRR over a period of time, such as a month or a quarter. The formula is straightforward:

((MRR at the end of the period - MRR at the start of the period) / MRR at the start of the period) x 100%

A positive growth rate indicates that the business has increased its MRR over the period, while a negative growth rate indicates a decrease in MRR.

How to Increase MRR

To increase MRR, businesses must focus on improving two key metrics: customer acquisition and customer retention. By increasing the number of customers, either through marketing efforts or sales strategies, businesses can increase their MRR. Additionally, by retaining existing customers through excellent customer service, product development, and support, businesses can reduce churn and maintain steady growth.

MRR and SaaS Metrics/KPIs

In the world of SaaS, Monthly Recurring Revenue (MRR) is a crucial metric that can help businesses understand their financial stability and growth potential. However, MRR is not the only important metric for SaaS businesses to consider. There are several other SaaS Metrics and Key Performance Indicators (KPIs) that can provide valuable insights into a company's overall performance.

Customer Acquisition Cost (CAC)

One of the most important metrics for SaaS businesses to track is Customer Acquisition Cost (CAC). CAC is the amount of money a business spends on sales and marketing to acquire new customers. It is calculated by dividing the total sales and marketing expenses by the number of new customers acquired during a specific period.

Customer Lifetime Value (CLTV)

Customer Lifetime Value (CLTV) is another important metric for SaaS businesses. CLTV is the total amount of money a customer is expected to spend with a business over their lifetime. It is calculated by multiplying the average revenue per customer by the average customer lifespan.

Churn Rate

Churn Rate is a metric that measures the rate at which customers cancel their subscriptions or stop using a service. It is calculated by dividing the number of customers lost during a specific period by the total number of customers at the beginning of the period.

Tools to Measure MRR

Once you understand what Monthly Recurring Revenue (MRR) is and how to calculate it, the next step is to measure it effectively. To do this, there are several SaaS metrics and KPIs tools that can help.

SaaS Metrics Tools

SaaS metrics tools are designed to measure different aspects of a SaaS business, including MRR. These tools help businesses track, analyze, and optimize their performance based on a variety of metrics. Some popular SaaS metrics tools include:

• InsightWhorthy
• ChartMogul
• ProfitWell

SaaS KPI Tools

SaaS KPI tools are designed to measure specific key performance indicators (KPIs) that are important to a SaaS business. These tools help businesses track and optimize their performance based on specific KPIs. Some popular SaaS KPI tools include:

• Geckoboard
• Klipfolio
• Databox

By utilizing these SaaS metrics and KPIs tools, businesses can easily track their Monthly Recurring Revenue (MRR) and make informed decisions to optimize their performance.

Conclusion

In conclusion, monthly recurring revenue (MRR) is a crucial metric for SaaS companies to measure their financial performance. MRR reflects the predictable revenue stream that a company expects to receive on a monthly basis, providing insight into a company's growth rate and overall health.

By understanding how to calculate MRR, businesses can evaluate their revenue growth and identify areas where they need to improve. Additionally, analyzing MRR alongside other SaaS metrics and KPIs such as customer acquisition cost (CAC), customer lifetime value (CLTV), and churn rate can provide a more comprehensive picture of a company's financial performance.

Fortunately, there are many tools available to help businesses measure and track MRR, including various SaaS metrics and KPI tools. By leveraging these tools, companies can quickly and accurately calculate their MRR and other important metrics.

Overall, MRR is a critical metric for SaaS companies looking to optimize their performance and drive growth. By understanding how to calculate and analyze MRR, businesses can make informed decisions about their strategy, positioning, and overall financial health.