Why is New MRR important?
New MRR is one of the most critical SaaS metrics to watch out for as it shows the new customers added month on month and indicates the general health of the subscription business.
How to calculate New MRR?
New MRR = Sum of MRR contributed by fresh subscriptions added during the month
New MRR = New customers * MRR per customer
Let’s take a simple example. If you added 5 new subscriptions this month giving you revenues of $100, $200, $300, $400, and $500 respectively, your New MRR for the month would be $1500, the reasoning being,
100+200+300+400+500 = $1500
Note that we don’t focus on MRR gathered from the current customer base or lost MRR (churned MRR). Another thing to notice is how this calculation does not take into account the setup fees or additional one time cost that makes up the total contract value (TCV). Also, do not take into account one-time payments or expected subscription revenue from trail customers.
New MRR only aims to focus on MRR
coming from new customers.
How can businesses benefit from New MRR?
New MRR is an important metric that can be monitored to help you deep-dive into what is causing your recurring revenue to increase or decrease on a month-on-month basis. Some of the benefits of New MRR are,
1.Control over Customer Acquisition Cost (CAC)
If your CAC is higher than your New MRR, it is an indication for your marketing budgets to be tweaked so it doesn’t eat into your overall profitability.. Track these figures on a monthly basis to ensure that the New MRR figures are higher than the cost of acquiring new business. This way, you can deep dive into the lifetime value
(LTV) of the customer as well.
2.Insight for Teams
New MRR in one way directly correlates to the marketing and sales team’s efforts. Making these figures visible to them and monitoring it regularly will give them a picture of the impact of their actions. This could give them more insights to better their KPIs.
To figure out if you actually made money at the end of the month, apart from calculating new MRR coming from new customers, you’d also have to take into account the number of customers you are losing per month.
a crucial role in deciding the health of a business and an understanding of the Net New MRR is important. Net New MRR uses different types of MRR which are,
- New MRR - The MRR contributed by new customers from last month to the next month
- Expansion MRR - The additional MRR that comes from existing customers due to upsells, reactivation, or movement across plans
- Churn MRR - This is the erosion of your MRR due to downgrades or cancellations.
which would help you determine whether you lost more revenue than you gained within a given period of time.