Net MRR Growth Rate

What is Net MRR Growth Rate?

MRR stands for Monthly Recurring Revenue, the total profit for a particular month. It is calculated by multiplying the number of subscribers by the average revenue per user(ARPU). Any recurring discounts, coupons, etc., are accounted for, but one-time fees are excluded.

• MRR = Number of subscribers under a monthly plan * ARPU

Net MRR would be your existing MRR, revenue from new users added, and loss from downgrading or lost customers deducted.

Net MRR Growth Rate measures the increase or decrease in MRR over successive months as a percentage. Net MRR changes monthly as new subscribers add revenue, and customer churn causes revenue loss. 

Net MRR Growth Rate tracks these variations and indicates how your SaaS Company is growing.

Why is Net MRR Growth Rate crucial?

Net MRR Growth rate gives you an accurate picture of how fast your company is growing. With this clear picture of the revenue potential, you have insight into the next leaps of growth.

Net MRR Growth Rate tracks financial performance over months, a reasonable period for a subscription model company, as opposed to weeks or years. It provides periodic insights into progress toward the annual revenue quota, helping set realistic financial goals as per finances.

Net MRR Growth Rate is essential for making correct sales projections and planning for growth. By analyzing Net MRR, you can anticipate the revenue for the next month and accordingly increase your sales efforts to reach your targets.

Net MRR also predicts revenue flow, giving you an accurate idea of the resources at your disposal after deducting expenditures. These figures are a solid basis for reliable decisions to budget your expansion.

How to calculate Net MRR Growth Rate?

To calculate the Net MRR Growth Rate, calculate first the Net MRR as follows: 

Net MRR = (Existing MRR + New MRR + Reactivation MRR + Upgrade MRR) - (Cancellation MRR + Downgrade MRR)

• New MRR refers to revenue from new users added that month. Reactivation MRR is users returning and reactivating. 
• Upgrade MRR is revenue from existing users upgrading or buying new products. 
• Cancellation MRR refers to revenue loss due to subscription cancellations. 
• Downgrade MRR is a loss from users downgrading to cheaper subscription plans.

To get the Net MRR Growth Rate, run the Net MRR calculation for the previous and current months and use the formula below. 

MRR Growth Rate % = [ Net MRR Month B - Net MRR Month A ] / Net MRR Month A X 100

For example, with a $1000 Net MRR for the first month and $3000 for the second month, the growth rate will be 200%.

($3000 - $1000) / $1000 X 100 = 200%

Advantages of Calculating Net MRR

• Net MRR Growth rate is a favorite with investors when evaluating a business as it is a straightforward metric indicating how your business is growing. 
• For companies themselves, it can measure comparative growth over months more accurately than absolute growth, which can be deceiving.

Disadvantages of Calculating Net MRR

• Net MRR Growth Rate is a deceiving figure when seen out of context. In the early stages, a startup may show exponential growth, which is not sustainable as the company matures. 
• Calculating the Net MRR Growth Rate over extended periods will give a more accurate figure.

Industry Benchmarks

There are no definitive benchmarks for monthly MRR Growth, but some guidelines can be kept in mind for different stages of growth for SaaS companies. A Net MRR Growth Rate of 10-20% is considered positive, and a 15-20% month-on-month growth for SaaS companies is a good target.