Why Is MRR (Monthly Recurring Revenue) So Important?

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Kevin Gardner ・November 10, 2020
3 minute read ・Updated November 10, 2020

MRR is an abbreviation that is used for the term monthly recurring revenue. It is a measure of your business’s total predictable income for the month. For example, if you have 15 customers and they pay $50 each per month, your total MRR would be $750.

However, if you are like some business owners, you may not know why monthly recurring revenue is so important or why you need to know what it is. Keep reading to find out about the types of MRR and what you can learn when you determine your business’s MRR.

Types of MRR

By breaking down your MRR, you can find trends and revenue growth to determine any areas you can improve.

New MRR is the level of monthly recurring revenue that is generated from your new customers. Another type is expansion MRR, which represents the additional recurring revenue from your current customers. It is also referred to as an upgrade and can increase from a cross-sell or upsell.

Churn MRR is the type of revenue lost because a customer downgrades or cancels, and net new MRR is the amount that is calculated using the three MMR types listed here. The actual formula to determine net new MRR is net new MRR equals New MRR plus Expansion MRR minus Churned MRR. The result of this calculation is going to let you know the amount of MRR that you are losing or gaining. If you add your new and expansion MRR together, and the answer is less than the churned MRR, you have lost money. However, if they are more than the churn MRR, you have earned money.

Performance Tracking

How big are the deals you close or sales you make? With MRR, your salespeople can see the total size of the accounts they are responsible for. If you earn a commission based on your total MRR, the amount of pay you take home could be affected based on the proportion of low and high MRR customers that you have sold to.

Do you struggle to make your MRR quota every month? If so, you can evaluate the deals with higher MRR that you have closed. For example, are there similarities between the clients that have bought something from you? Was there anything that you did during the sales cycle that had a positive impact on a sale? When you look at these details, you can modify the sales approach that you use and find new opportunities in your pipeline. Also, your analysis may even result in you being able to close higher MRR deals.

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Sales Forecast Benefits

Just like sales reps can look at their individual performance, the sales managers and other business leaders can view the big picture to see how the team is doing all together. When the total MRR is considered, it is possible to make sales forecasts that are more accurate and long-term projections. This will help your sales team plan for growth in both the short- and the long-term.

Budgeting Considerations

If you do not have a steady stream of income, it will be challenging or impossible to run and build a successful business. By knowing your business’s MRR, you will know the amount of money that is expected to come in every month and that you have to reinvest in your company. For example, when you know this amount, you can determine if you will be able to hire more people to help with business development in the upcoming month. You can also decide whether you can create and run a lead generation campaign. The total amount of revenue that you have coming in is a crucial factor in these critical situations.

If you find it challenging to make ends meet, you can also find trends in your MRR over time that may show potential financial issues. However, if you have monthly recurring revenue that trends upward, this can serve as motivation for your entire sales team. As your sales representatives start building momentum and closing higher MRR deals, they will be more engaged in their roles and more engaged to close even more. MRR is considered a key metric for decision making and business planning.

Reasons to Learn About Your MRR

When it comes to your MRR, knowing what it is and what it can tell you about your business is essential. Take some time to keep the information here in mind to ensure that you get the desired results and that you can predict important details about your business’s growth. Being informed is the best way to secure ongoing business growth.

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