RevenueA 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 × 12Revenue = 20,000 × 12 = $240,000
Rule of 78The 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
CommissionA 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|
Payments that can be reliably expected each month on a recurring basis.