What is MRR in Digital Marketing – Monthly Recurring Revenue

MRR (Monthly Recurring Revenue) means how much money your business earns every month, this term is especially popular in digital marketing and businesses that use subscription model. Note that it mentions revenue, not the profits after deduction of all the costs.

1. Why everybody is talking about Monthly Recurring Revenue
2. What is MRR in SaaS and why does it matters
3. Is Monthly Recurring Revenue metric enough for businesses and digital marketing
4. Summary

Why everybody is talking about Monthly Recurring Revenue

I have two clients who have their SaaS (Software as a Service) side projects that earn a small, but steady amount of money every month. The numbers are not crazy and these SaaS are almost 10 years old each, but my clients were very surprised that the popularity of the Monthly Recurring Revenue metric is experiencing wild growth right now. There is even a service that generates fake MRR reports!

The reason for MRR hype is that it became the most widely used metric to evaluate the state of an online business. It is especially popular among independent developers and businessmen (indie hackers, build in public movement, and the founder mode people) who use it for multiple purposes. Of course there are other metrics to evaluate online business with subscription model like Annual Recurring Growth or Customer Lifetime Value, but let’s focus on MRR in this article.

What is MRR in SaaS and why does it matters

Monthly Recurring Revenue is calculated as Total number of customers × Average revenue per customer. As an example of MRR calculation for subscription business, if SaaS has 100 customers that pay 10 dollars every month (on average), then the MRR is 1000 dollars. It is that easy.

Knowing MRR for one month brings almost no value, but when there is data for multiple months in a row, it gets more interesting and business owners can already make some predictions regarding the future revenue. The historical data and forecast can be useful for multiple purposes, including business planning, preparing SaaS for selling or analysing the SaaS that is on the market.

Is Monthly Recurring Revenue metric enough for businesses and digital marketing

When talking about any kind of revenue, keep in mind that it shows only one side of business. Like in Monthly Recurring Revenue, the metric does not take into account how much money it takes to run the business. During evaluation and acquisitions of SaaS businesses all three things matter – revenue, costs, and profits (plus the historical data).

Different businesses target different metrics. MRR is an important metric to watch, but all other metrics are equally important not to lose contact with reality.

Consider the example below.

The red line is MRR that had very good and steady growth for the first 5 months. It looked like everything was great at that point (for social network followers, colleagues, and even the owner’s spouse).However, the blue line with all the costs (including hiring contractors, paying for expensive LLM, and the marketing budget) gives a completely different picture, as in fact the SaaS never brought any profit and was doomed to fail (the reason was not poor tech market conditions, but unreasonable expectations and inability to pivot). But again, it had a steady and nice MRR. Drop me a message if you want to see another post on other metrics for business evaluation.

Summary

Monthly Recurring Revenue (MRR) is one of key metrics in digital marketing that provides a measure of growth, stability, and profitability. By tracking MRR, businesses can gain insights into areas for improvement, customer retention, and growth potential.

At the same time, MRR is only about the revenue. It means that it is essential to understand costs and profits that a business has in order to ensure the full understanding of what is going on with it, not just the revenue.