Understanding Monthly Recurring Revenue (MRR)

Written by Chris Behier

Sep 20, 2024

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What is Monthly Recurring Revenue (MRR)?

Monthly Recurring Revenue (MRR) is the amount of money a business can expect to make every month from subscription fees. It's a key metric for checking financial health and growth potential, especially for subscription-based or eCommerce businesses.

To calculate MRR: find your average revenue per account (ARPA) by dividing total monthly revenue by number of active customers, then multiply by total customers. For example, if a shop has 100 customers paying a $50 subscription monthly, MRR = $50 × 100 = $5,000.

Types of MRR

Direct MRR: revenue from subscription fees or membership dues.
Add-on MRR: extra revenue from upsells and cross-sells to existing customers.
New MRR: revenue from newly acquired customers.
Expansion MRR: revenue from existing customers upgrading to higher tiers or plans.

MRR vs. One-Time Payments

MRR comes from regular monthly charges, giving companies a predictable, steady cash flow that's easier to plan around. One-time payments aren't as predictable but still matter, especially for stores selling items people buy infrequently. Many businesses benefit from mixing both models.

Strategies to Increase MRR

Tiered pricing: offering multiple subscription levels with different features tempts customers to upgrade, increasing what they pay monthly.

Cross-selling and upselling: suggesting complementary items or higher-value plans based on customer data and purchase history increases each sale's value.

Improving retention: better user experience, customer service, and personalized recommendations keep customers subscribed longer.

Tools for Tracking MRR

Tools like HubSpot, Salesforce, Zoho, and ChartMogul help calculate MRR, analyze retention, and predict future earnings. Payment platforms like Stripe and PayPal can also feed real-time subscription data into your MRR tracking.

Best Practices for Startups

Set realistic MRR targets based on market research and business goals, not just ambition.
Regularly review your business model for new revenue opportunities — new channels, pricing tweaks, or customer segments.
Invest in customer success early; retention compounds MRR growth far more efficiently than acquisition alone.
Use data analytics to guide pricing and acquisition decisions rather than guesswork.

If you need a hand in any aspect of eCommerce, feel free to reach out to us at wish@thegenielab.com

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Understanding Monthly Recurring Revenue (MRR)