Understanding MRR: The Most Important Metric for SaaS Businesses

If you run a subscription-based business, Monthly Recurring Revenue (MRR) is likely the single most important metric you should be tracking. Let's dive deep into what MRR is, how to calculate it, and how to use it to grow your business.

What is MRR?

Monthly Recurring Revenue (MRR) is the predictable revenue your business generates every month from subscriptions. Unlike one-time sales, MRR gives you a reliable baseline of income you can count on.

The Basic Formula

MRR = Number of Customers × Average Revenue Per Customer

For example, if you have 100 customers paying an average of $50/month:

MRR = 100 × $50 = $5,000

Types of MRR

Understanding the components of MRR helps you identify growth opportunities and potential problems.

1. New MRR

Revenue from new customers acquired during the month. This is your growth engine.

2. Expansion MRR

Additional revenue from existing customers who upgraded their plans or purchased add-ons. This is often the most profitable growth source.

3. Churned MRR

Revenue lost from customers who cancelled. Keeping this low is crucial for sustainable growth.

4. Net New MRR

The formula that brings it all together:

Net New MRR = New MRR + Expansion MRR - Churned MRR

A positive Net New MRR means your business is growing.

How Karsilo Calculates MRR

In Karsilo, we automatically calculate MRR from your Stripe data. Here's what we consider:

• Active subscriptions at the end of the period
• Normalized annual plans (divided by 12)
• Discounts and coupons properly deducted
• Multiple currencies converted to your base currency

Note: One-time charges and usage-based fees are tracked separately and don't count toward MRR.

MRR vs. ARR

You might also hear about Annual Recurring Revenue (ARR). The relationship is simple:

ARR = MRR × 12

ARR is commonly used when:

• Talking to investors
• Planning annual budgets
• Comparing against annual metrics like customer lifetime value

Benchmarks: What's Good MRR Growth?

While every business is different, here are some general benchmarks:

| Stage | Healthy Monthly Growth | |-------|----------------------| | Pre-PMF | 15-20% | | Early Stage | 10-15% | | Growth Stage | 5-10% | | Scale Stage | 3-5% |

Common MRR Mistakes

1. Including One-Time Fees

Setup fees, implementation charges, and one-time purchases should not be counted in MRR.

2. Not Accounting for Discounts

If a customer pays $80/month but has a permanent 20% discount, their MRR contribution is $64, not $80.

3. Ignoring Currency Fluctuations

If you have customers paying in different currencies, exchange rate changes can affect your MRR. Use a consistent conversion rate.

4. Counting Free Trials

Users on free trials don't contribute to MRR until they convert to paid plans.

How to Grow Your MRR

Focus on Retention First

It's cheaper to keep existing customers than to acquire new ones. A 5% reduction in churn can have a bigger impact than a 5% increase in new customer acquisition.

Upsell and Cross-sell

Expansion MRR often has the highest margins. Consider:

• Usage-based pricing tiers
• Premium feature add-ons
• Annual plan incentives

Optimize Pricing

Many SaaS businesses underprice their products. Consider:

• Value-based pricing
• Regular price reviews
• Grandfathering existing customers

Reduce Churn

• Implement better onboarding
• Proactive customer success outreach
• Exit surveys to understand why customers leave

Tracking MRR in Karsilo

Karsilo makes tracking MRR simple:

1. Dashboard Widget: See your current MRR front and center
2. Trend Charts: Visualize MRR growth over time
3. MRR Breakdown: See new, expansion, and churned MRR separately
4. Alerts: Get notified when MRR changes significantly

Conclusion

MRR is more than just a number – it's a window into the health of your subscription business. By understanding its components and tracking it carefully, you can make better decisions and build a more sustainable business.

Start tracking your MRR with Karsilo today and gain the clarity you need to grow.