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What does MRR stand for and why does it matter to startups?

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TLDR; MRR stands for Monthly Recurring Revenue.

It is a critical metric used by SaaS (Software-as-a-Service) and subscription-based businesses to measure the total revenue generated from recurring subscriptions or contracts on a monthly basis.

MRR helps businesses understand and track the financial health and growth of their recurring revenue model. It provides insight into the performance and stability of a business by analyzing the consistency of its revenue stream.

How to estimate your MRR?

The MRR formula is quite simple:

MRR = total number of paying customers * average revenue per user (ARPU)

For example, if you have 90 paying customers, each paying an average of $75/month, then your MRR is 90*75 = $6750

Why should MRR matter to you?

MRR, or Monthly Recurring Revenue, is a crucial metric for any business, particularly for subscription-based models. Here's why MRR matters:

📢 But first, before having paid customers and MRR, you have to make sure you enroll core early adopters. They will be your future customers 💵

Stimpack boosts your preparation before generating MRR by leveraging social media, enrolling new adopters, shipping landing pages quickly, gaining early traction, and launching products in Days.

Stimpack is your next-generation early-stage product growth platform

Is there a better metric for your Saas startup financial health?

MRR does not provide a complete picture of the business. There are better metrics to consider when trying to measure your company's financial health and stability. For example:

  • The ARR (Annual Recurring Revenue) takes into account the annual revenue generated by each customer or cohort and provides a more accurate measure of long-term revenue stability and growth potential.
  • The CAC (Customer Acquisition Cost) determines the efficiency and profitability of acquiring new customers.

Overall, using a combination of metrics like MRR, ARR, and CAC can provide a comprehensive understanding of a SaaS startup's financial health.

Advanced Saas profitability metrics

There are many more advanced metrics one can rely on:

  • Customer Lifetime Value (CLTV): calculates the net value a customer brings to the business throughout their entire relationship.
  • Gross Margin: evaluates the profitability of a company by subtracting the cost of goods sold from the revenue and dividing it by the revenue.
  • Churn Rate which measures the rate at which customers are leaving a Saas company, representing the impact on revenue and growth.
  • Burn Rate: displays the rate at which a company consumes its cash reserves, indicating financial stability and runway.
  • EBITDA for Saas (stands for Earnings Before Interest, Taxes, Depreciation, and Amortization) which is a key financial metric used to evaluate the profitability and performance of Saas companies.

The EBITDA helps investors and analysts assess the company's ability to generate cash flow before accounting for non-cash expenses and interest payments. It provides insight into the operating profitability and efficiency of a Saas business, disregarding the impact of financing decisions and tax regulations. It is one of the preferred financial indicators for investors.

Extra insights are provided by our survival guide to simple startup product analytics which thoroughly explores the essential metrics and data-driven strategies necessary for new startup business growth.

That's all for today folks, stay tuned with Stimpack, your early-stage product growth platform 🤗

Curious about Stimpack for early-stage startups and solopreneurs?

Stimpack is your next-generation early-stage product growth platform.
Our all-in-one product will help you create digital products, gain early traction, find your first early-adopters and future customers; and launch products faster than ever.

Where can you find us?

We are on social media,
Twitter: @StimpackHQ
Founder's Twitter: @SaidAitmbarek
Linkedin: linkedin.com/company/stimpack
Blog: blog.stimpack.io/