What is monthly recurring revenue in a SaaS business?
For C-level execs and for organizations that adopt Monthly Recurring Revenue as a core operating and board-level metric, Monthly Recurring Revenue is probably the most important SaaS metric of all.
The general concept is that Monthly Recurring Revenue is a measure of the predictable and recurring revenue components of your subscription business. It will typically exclude one-time and variable fees, but for month-to-month businesses could include such items.
What is important about Monthly Recurring Revenue is not a single number per se, but rather the momentum around the components of your company’s MRR:
- Monthly Recurring Revenue from renewals
- Monthly Recurring Revenue from new sales
- Monthly Recurring Revenue from upgrades
- Monthly Recurring Revenue losses, or revenue churn
As is for most , there is no specific definition for Monthly Recurring Revenue. In fact, there can be significant confusion over the term itself and measurement of Monthly Recurring Revenue because it feels and sounds like “revenue” in the context of revenue recognition. However, MRR is not recognized revenue and is calculated very differently, which can cause confusion and turmoil in the finance department, the group typically tasked with calculating and reporting Monthly Recurring Revenue.
It will be up to your organization to define what Monthly Recurring Revenue is and most importantly the rules for calculating the components.
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