4 Examples of Monthly Recurring Revenue

John Spacey, updated on April 05, 2017

Monthly recurring revenue (MRR) are payments owed by customers each month such as a monthly service fee. It's a basic financial metric for businesses that generate recurring fees such as subscriptions to software or telecom services. The following are illustrative examples of monthly recurring revenue.

Revenue

A small IT services firm generates $20,000 MRR. Their current annual revenue without any additional sales is calculated by multiplying MRR by 12.

Revenue = MRR × 12

Revenue = 20,000 × 12 = $240,000

Rule of 78

The rule of 78 is a common shortcut used to calculate additional revenue from MRR for a fiscal year. A salesperson who adds $1000 to MRR each month generates total revenue of $1000 x 78 for the year. The first month's new revenue generates 12 payments for the fiscal year followed by 11 payments for accounts signed in the second month and so on. If you add these up it comes to 78 (12 + 11 + 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1).

New Revenue (current fiscal year) = 1000 × 78 = $78,000

Commission

A telecom firm pays monthly commissions to its sales team of 3% of annual revenue. In a month, a salesperson closes $14,000 in MRR.

Revenue = 14,000 × 12 = $168,000

Commission = 168,000 × 0.03 = $5,040

Customer Lifetime Value (CLV)

Firms that generate MRR have significant incentives to improve customer satisfaction in order to retain customers. A firm with average customer retention of 14 months and average customer MRR of $1000 has a customer lifetime value (CLV) of $14,000. If they improved customer retention to 60 months this would improve to a CLV of $60,000.

CLV = average retention (months) × MRR (average per customer)

CLV = 60 × 1000 = $60,000

Overview: Monthly Recurring Revenue
Type	Financial Metrics
Definition	Payments that can be reliably expected each month on a recurring basis.
Related Concepts	Business Models Customer Lifetime Value Financial Metrics