Monthly Recurring Revenue is easily among the most important aspects of a business. Often referred to as the lifeline of a business, this revenue recurs for the business every single month. This allows the business to properly manage cash flow over time.
Why Is It Important?
Monthly Recurring Revenue plays a vital role in any business. Since it recurs every thirty days, it most often than not does not take into account any one-time revenues. However, businesses that operate on a month-to-month basis can also include those revenues in it.
Monthly Recurring Revenues include things like monthly subscription models where customers pay businesses a fixed amount every thirty days. This is in return for a fixed set of services that the business provides them through the month. Among the major reasons why investors love this recurring revenue model so much is that it allows them a predictive influx of cash for the business. By knowing the actual amount that is to come in, businesses can take steps in the right direction without facing any revenue dips.
Also, recurring revenue for any business also tends to create a higher, better lifetime customer value. This is because the likelihood of a customer to spend more on a business increases as the customer continues to use the services. This also tends to make a customer spend more on business in comparison to would they would spend with a one-time payment.
There are two different types of monthly recurring revenues—MRR from a new customer and MRR from customers who have upgraded their plans. To calculate the actual monthly recurring revenue, simply add the MRR from new and upgraded customers and subtract those from customers who have canceled their subscription during that particular month.