Business
Explaining Monthly Recurring Revenue (MRR)
Understand Monthly Recurring Revenue (MRR), a critical metric for subscription-based startups to track predictable income, growth, and overall health.
What is it?
Monthly Recurring Revenue (MRR) is a critical financial metric measuring the predictable revenue a business can expect each month. It's the lifeblood of subscription-based companies, like Software-as-a-Service (SaaS) providers. The basic calculation involves multiplying the total number of paying customers by their average monthly fee. This normalizes revenue into a consistent monthly amount, making it easier to track trends. Importantly, MRR excludes one-time fees and variable charges, focusing solely on the core, predictable income stream that sustains the business and fuels its growth.
Why is it trending?
MRR is a hot topic due to the boom in the subscription economy. As more startups adopt this model, investors and founders need a reliable way to gauge financial health and growth. MRR provides a clear snapshot of momentum, making it essential for financial forecasting and strategic planning. For investors, a consistently growing MRR signals strong product-market fit, high customer retention, and a scalable business model. This makes the company a far more attractive investment, as it demonstrates a stable and predictable path to profitability and long-term success.
How does it affect people?
For startup founders, MRR dictates major decisions, from hiring and marketing budgets to company valuation during fundraising rounds. Investors rely on it as a primary KPI to assess a startup's viability and potential for returns. Employees are also affected, as company performance tied to MRR growth can influence job security, compensation, and available resources. Ultimately, a stable MRR shows that a company is delivering consistent value to its customers, which creates a more secure and promising environment for everyone involved, from the CEO to the newest hire.