MRR: what is it, how to calculate it, and the advantages of recurring revenue

Digital businesses have found a great opportunity in subscription services. Offering products in exchange for recurring payments means giving another option for customers. 

You don’t have to think very hard to remember services and products that use this business model: streaming services, online tools, and digital magazines are some of them.

In fact, this model is also used in member’s areas, communities, courses, and other similar experiences that are sold not only by major companies, but also by small entrepreneurs.

If this is your case, MRR should be part of your business’ day-to-day activities and will increase your total earnings.

We’ll tell you what MRR is, explain why you should keep an eye on this metric, and give you valuable tips to increase your MRR results!

What is MRR?

MRR stands for Monthly Recurring Revenue and is a very important calculation, especially in companies that develop software and subscription models.

This metric measures the monthly amount received by the business through its subscriptions. For SaaS companies, this number is even more relevant because it gives the team an overview of the product or service development, helping in decision making and upcoming investments.

What are the advantages of working with recurring revenue?

Including MRR as a key metric in a business that offers subscription plans has long-term advantages.

The calculation, besides helping understand if the business has progressed well – and how investments should be made within the current earnings – also helps predict how the platform will grow and the actions that need to be taken at each stage.

For example: if a movie streaming service has reduced the releases in its catalog and noticed that, over the last 6 months, this has generated a drop in MRR, it’s an indication to increase its catalog or release another service, for example.

The point is that this metric comes from the financial zone and joins the strategic area of a business, broadening the perception of current and future results.

How to calculate the Monthly Recurring Revenue

As much as the MRR calculation is the sum of what was received by subscriptions in a month, there are a few points that need to be noted before arriving at the final number.

The total revenue sum is simpler and joins the entire amounts received in the month, both equal amounts and from other subscription plans.

There’s also another calculation that is closely related to MRR, the ARPU (Average Revenue Per Use).

For annual contracts, for example, you can add up how much you’d receive and divide it by the number of customers. This average requires careful attention, since you need to add new subscribers and exclude those who no longer subscribe or have changed payment plans.

What is the optimal MRR rate?

When we talk about MRR, there may be an idea that there’s an optimal metric value for companies, but this rate fluctuates from business to business.

Overall, it’s important to always have a positive result, to have revenue that is sufficient for business expenses and that is above the churn rate. This is a way to keep growing and mitigate losses.

5 tips to increase your business’ MRR

Every business seeks to increase its revenue, and in subscription services, this number is essential to keep the product active. We have listed 5 tips that will boost your business’ MRR:

Update your product’s price

This is the opportunity to reassess your product’s price. Upgrade it to a fair price that is compatible with the quality of what is being offered, and that meets your audience’s needs.

Look at the latest results and think about how this new pricing can be implemented without jeopardizing your customer base or the number of subscriptions. 

Offer a trial instead of a freemium version

Freemium is a good option to attract people interested in your product, but it’s also a risky path for subscription plans.

Many people who signed up for the free version may end up not signing up for any paid products, which will become a loss in the future.

This audience also requires that the business make investments, and having a monthly user that generates losses instead of financial growth may not be the best option.

Alternatively, a trial version is a better option, since users merely try out the product for free and at some point, will have to pay for the subscription.

As an example, we have streaming services that offer 30 days free. Customers sign up, fill out their payment details, and are billed after a month. The experience becomes complete and attractive enough for the user to continue using the service afterwards.

Offer different payment plans

Do you offer options that your audience can afford?

Instead of offering just one plan, how about diversifying and offering plans at different prices with different features.

This attitude gives customers more freedom, since they have the option of choosing something customized to meet their needs.

A potential subscriber looking for something convenient will be interested in the simpler plan, while another customer who wants a full experience may be interested in the option with more features.

By considering different tastes and needs, you’ll get more people interested and increase your monthly recurring revenue.

Keep your customers satisfied

Satisfied customers and especially, customers who are passionate about your business, guarantee an ever-growing MRR.

Building loyalty with new customers and giving old ones due attention ensures a business that is more secure and builds a base of growth for new customers who are yet to come.

Therefore, provide good service and support, maintain communication through social media, email, blog, and survey your customers whenever possible.

Have a customer acquisition strategy

Customers are the key to a growing MRR. In any business, a good digital marketing strategy attracts sales and increases revenue.

Get to know your audience, create a persona, develop a content plan, analyze KPIs, explore online platforms, invest in lead capturing, and outline a buying journey.

Brand positioning, social proof, and techniques, such as copywriting and SEO, also reach potential customers for your product.

Study your brand, your market, and the strategies that will be adopted, and get to work!

Find out how much money you can make with a digital product

Are you considering creating a digital product? Or maybe expanding your product portfolio? Well, then, it’s essential that you know how profitable your idea is.

Hotmart can help you with that. We have created an exclusive profitability calculator for you. In just three minutes, you can find out how much you could make if you launched the digital product of your dreams — it could be an online course, ebook, or even a webinar.

It is pretty simple: you fill in some information about the digital product you want to launch, including the niche and the size of your audience. 

Based on that information and the comprehensive data Hotmart has from more than 580k digital products hosted on the platform and over 35 million users, we can help you estimate your profits, so you can develop the best strategy for you. 

Click on the banner below to check it out!

Increase your business’ Monthly Recurring Revenue

Now that you know what the MRR is, you know how important it is for companies offering subscription plans. This metric helps you to see if the business is doing well, if the revenue is positive, and how much it has grown from time to time.

The monthly recurring revenue is also a way of outlining improvement strategies, or to understand which actions are generating the most results.

To increase this metric, there are a few fundamental tips, such as updating your product’s price, creating other subscription plans, changing the freemium version to a trial version, keeping your customers happy, and working on strategies to attract new customers!

Speaking of customers, check out our article on customer success and learn the key techniques to keep your MRR growing!