In an era where digital marketing is the order of the day, companies depend on important metrics to measure growth, performance, and profitability. Another indicator that is especially valuable to subscription-based businesses and SaaS companies is MRR, or Monthly Recurring Revenue.

Knowledge of MRR is essential to any individual in the field of digital marketing be it a business owner, marketer, or investor. In this post, we will explain what MRR is, why it is important, how to calculate it, and how it can fit into a larger digital marketing plan.

What Does MRR Stand For?

MRR stands for Monthly Recurring Revenue. It is the regular and expected revenue that an organization can anticipate to receive every month by its subscribers or customers.

MRR provides a better understanding of your company revenue flow as compared to one-time sales.

This is an essential metric to businesses that have a subscription model, including:

• SaaS (Software as a Service) companies
• Membership websites
• Streaming services
• Subscription boxes
• Online learning platforms

Why is MRR Important in Digital Marketing?

Predictable Revenue

MRR enables businesses to predict future revenues and hence it becomes easy to plan the marketing campaigns, payrolls, software, and other operating expenses.

Performance Measurement

MRR is used by digital marketers to gauge the success of marketing campaigns. In case your campaigns attract new subscribers, MRR will increase.

ROI Tracking

When marketers make paid advertising investments, email marketing, SEO, or social media investments, they want to know whether or not the investments are resulting in revenue. Monitoring the fluctuations in MRR will demonstrate whether your marketing strategies are working.

Customer Retention Insights

MRR also reflects customer satisfaction and loyalty. A consistent or increasing MRR indicates that your product or service is of value to customers.

How to Calculate MRR

The basic formula to calculate MRR is:

MRR = Subscribers x Average Revenue Per User (ARPU)

Example:

Assume that you have 100 clients who pay you 50 dollars/month to use your software.

MRR = 100 x $50 = $5,000

This translates to $5,000 per month of predictable recurring revenue to your business.

Different Types of MRR

Not all MRR is the same. The knowledge of the various types can assist marketers and business owners to make better decisions.

New MRR

The revenue that came in due to new customers who signed up in the present month.

Why it matters: Indicates how well your acquisition marketing is performing.

Expansion MRR

Revenue earned by the existing customers who upgrade their plan or add other services.

Why it matters: It shows the effectiveness of your upsell and cross-sell strategies.

Churned MRR

Lost revenue when the customer cancels his subscription or downgrades his plan

Why it matters High churn may be a sign of issues with customer satisfaction or product-market fit.

Net New MRR

This is cumulative monthly MRR growth and is calculated as:

New MRR = New MRR + Expansion MRR -Churned MRR

How MRR Helps Shape Digital Marketing Strategy

MRR is not merely a finance indicator but a strong marketing instrument in case it is used properly. Here is how digital marketers can leverage MRR to create smarter campaigns.

Target the Right Audience

Understanding the customer segments that drive the most MRR, the marketer can target similar high-value groups via paid advertisements, content marketing, or email campaigns.

Optimize Customer Journeys

In case some of the touchpoints (landing pages, email sequences, etc.) drive more subscriptions, marketers can duplicate and optimize such touchpoints to maximize MRR.

Test Pricing Models

Marketing teams can A/B test different pricing levels or bundling options and track the impact on MRR over time.

Improve Customer Retention

MRR helps highlight customer churn. In case MRR decreases without warning, marketers can dive into customer feedback, revise onboarding emails, or roll out re-engagement campaigns.

Tools to Track MRR

There are a few tools and platforms that can assist digital marketers in tracking MRR in real-time:

• Stripe – Great at recurring payments and automatic tracking of MRR
• Baremetrics – Built exclusively to measure SaaS metrics such as MRR, LTV, churn etc.
• ChartMogul -This is a tool that allows subscription businesses to analyze recurring revenue and customer behaviour
• ProfitWell – Offers free MRR tracking with detailed reports

These tools are usually connected to your payment processor or CRM, so it is easier to track your MRR without doing the calculations manually.

MRR vs. ARR: What’s the Difference?

One of the most widespread questions is what is the difference between MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue)?

• MRR is the recurring revenue you receive on month to month
• RR is the amount of recurring revenue you anticipate to get each year

ARR = MRR x 12

Both are good, but MRR works well when it comes to short-term planning and tactical marketing decisions as compared to ARR that is more appropriate when it comes to long-term business forecasting.

Common Mistakes to Avoid When Using MRR

Although MRR is a simple metric.

There are certain traps to avoid:

Including One-Time Payments

MRR should only include recurring payments. Single payment, installation costs, or equipment sales are not to be included.

Ignoring Churn

Concentrating on new MRR and not taking into consideration churned MRR may present a false impression of growth.

Overcomplicating the Calculation

Use the simple formula unless you have complicated pricing levels. When you get too detailed it can be confusing without providing real value.