How to Calculate Net MRR

Mike Preuss
CEO
Learn How to Calculate Different Forms of MRR
Unlock your investor relationships. Try Visible for free for 14 days.
Start your free trial

Learn How to Calculate Different Forms of MRR

This post is part of our Most Valuable Metrics series, helping your company understand how to develop a holistic framework for tracking your performance and telling your story to everyone who matters to your business. You can find previous posts in the series here:

Like every SaaS business, consistent subscription revenue is vital to your success. That’s why knowing your Monthly Recurring Revenue, or MRR, is so important. MRR is a measurement of the total predictable revenue you expect to make on a monthly basis.

Here’s a very simple example of MRR. You have three customers with the following subscription rates.

  • Customer X pays $75/month
  • Customer Y pays $50/month
  • Customer Z pays $25/month

Your total MRR is $75 + $50 + $25 = $150.

Net MRR gives your company a holistic overview of revenue gained from new subscriptions and upsells/upgrades and revenue lost from downgrades and cancellations.

MRR might not be part of GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards) but because of its importance in raising capital and gauging your sales and marketing success, it is crucial to understand and calculate correctly. Unintentionally misrepresenting your business to potential investors or developing your business plan on faulty data could spell disaster for your company.

To start, when calculating your MRR, do not include the following.

Full value of multi-month contracts: If you have quarterly, semi-annual, or annual contracts, normalize them to a monthly rate. Take the full subscription amount paid and divide it by the number of months in the contract. For example, your customer pays you $1,200 for an annual subscription. Dividing that by 12 gives you a monthly rate of $100 which you should use in your MRR calculation instead of $1,200.

One-time payments: One-time payments are not recurring, so you shouldn’t include them in your MRR calculation. One-time payments are not the same as multi-month payments. Even though a customer is paying a lump sum payment for those months, you expect the customer to make another lump sum payment at the end of the subscription period. With one-time payments, you don’t expect the customer to make another subscription payment.

Trialers: Until trial customers convert to being regular customers, don’t include their expected subscription values in your MRR calculation.

Now that you know how to determine your MRR and understand what should be excluded, you can calculate your net MRR. Net MRR includes the following:

New MRR: MRR from new customers

Expansion MRR: MRR from gained from existing customers when they upgrade their subscriptions

Churned MRR: MRR lost from existing customers when they downgrade or cancel their subscriptions
So, the formula for calculating Net MRR is:

Knowing the three elements of Net MRR is critical to understanding how your business is growing. Ideally your Expansion MRR should be greater than your Churned MRR each month. If it is, then you’re doing something right with your existing customers!

Want to read more on Monthly Recurring Revenue and how it impacts your business as your grow?

You may also enjoy:
Customer Stories
Building Trust and Vulnerability in Business with Max Yoder
On the fourth episode of the Thrive Through Connection Podcast, we welcome Max Yoder, the Founder of Lessonly and author of Do Better Work. Lessonly was an Indianapolis-based company that grew to over 300 employees and $30 million in annual recurring revenue before being acquired by Seismic in 2021. Max joins us to share the lessons he learned from scaling Lessonly and writing Do Better Work. About Max In addition to growing Lessonly to 300+ employees and leading it through a successful exit, Max became known for his thoughtful approach to leadership, insights he captured in his book, Do Better Work. He’s had a front-row seat to the highs, lows, and daily challenges that startup founders and leaders face. In this episode, Max breaks down the countless relationships that shaped both Lessonly and Do Better Work. Mike, the CEO and Founder of Visible, had an opportunity to sit down and chat with Max. You can give the full episode a listen below: Spotify Link Apple Link What You Can Expect to Learn from Max How the mission and vision for Lessonly came to life How mentors helped shape decision-making and strategy in the early days The advantages of having a strong network What it means to lead with vulnerability The importance of aligning with investors and partners Stay up to date with the Thrive Through Connection Podcast by subscribing wherever you listen to your podcast. You can find links to your favorite podcast hosts below: YouTube Spotify Apple
Fundraising
Finding the Right Investors with Laurel Hess
Reporting
Navigating Investor Relationships with Brett Brohl
Fundraising
Going From Operator to Funder with Leo Polovets