How to Calculate & Understand MRR

Monthly Recurring Revenue (MRR), the holy grail of any subscription business, an island of singing greek nymphs. This is your compass for how well the business is growing and warning sign for when it is not.

Here is how it works, you sum up the monthly subscription fee from New subscribers, add the incremental fee between subscribers new upgraded plan from the previous plan, subtract the decreased fee for subscribers who downgrade and finally subtract the lost fees (churn) of subscribers who didn’t renew. This gives you the Net monthly recurring revenue (Net MRR).

How to calculate Net MRR

How to calculate MRR churn

[Net MRR] = [New MRR] + [Upgrade MRR] – [Downgrade MRR] – [Churn MRR]

Net MRR can be added to the total MRR at the beginning of the month, and you will have total MRR end of month, just like inventory management.

Upgrade MRR

Now image that 10 subscribers upgrade their plans from “Basic” ($100/mo) to “PRO” ($300/mo).

This means that in “Month 1” the “Upgrade MRR” is $300-$100 = $200 * 10 = $2.000 (Upgrade MRR).

Plus 4 subscribers upgraded from “PRO” ($300/mo) to “Enterprise” ($600/mo), which is $600-$300=$300*4=$1,200

Churn MRR

How to calculate Net MRR

How to calculate MRR churn

[Net MRR] = [New MRR] + [Upgrade MRR] – [Downgrade MRR] – [Churn MRR]

Net MRR can be added to the total MRR at the beginning of the month, and you will have total MRR end of month, just like inventory management.

I’ve seen a lot of subscription business reporting revenue as a lumps sum, i.e. “total sales”. This will not help you manage a subscription business. Using the MRR model is the ONLY way you can see if your subscribers are growing, upgrading or churning. So make sure you do this. If you need help setting this up, please reach out to me.

New MRR

New MRR is the simply the revenue from new customers, not existing subscribers who stay on their subscription plan, ONLY new subscribers.

Practically, you will just sum new revenue from all new subscribers who signed up for the monthly plan, from your CRM system or payment service.

NB: If you have annual subscription plans ($900/yr), then these needs to be spread (normalized) across 12 months.

Example: in “Month 1” you might have gained 50 new subscribers: 40 subscribers on a monthly plan ($100/mo) and 10 subscribers on an annual plan ($900/yr)