Understanding MRR
What is MRR?
MRR is an acronym for Monthly Recurring Revenue, or very simply a measure of your predictable revenue stream. A primary purpose of MRR is to permit performance reporting across dissimilar subscriptions terms.
The MRR reporting challenge is quickly illuminated in the following scenarios:
- Customer A subscribes to a one-year term with a $1200 total contract value.
- Customer B subscribes to a two-year term with a $2400 total contract value.
- Customer C upgrades mid term, adding $845 in contract value to what was previously a $1200 contract and now a $2045 contract value.
- Customer D downgrades mid term, reducing $562 in contract value to what was previously a $1200 contract and now is with $638.
- Customer E has a $1200 annual contract, but updates AND extends the contract at the same time, establishing a new end date.
- Customer F fails to renew a three-year contract with a total contract value of $3600.
Using the traditional method of bookings, it is difficult to get a clear sense of performance. Real growth rates and real churn rates are difficult to measure without some form of contract revenue normalization. MRR provides such normalization.
MRR is frequently used in a number of critical subscription performance reports: Momentum, Customer Lifetime Value (uses MRR in the CLV computations) and MRR Cohort.