How To Calculate Monthly Recurring Revenue

With the explosion of digital media, not only are more people creating content constantly, but they are also investing in apps and services that allow them to create, distribute, and monetize their content.

A growing number of entrepreneurs recognize the value of this content as an efficient way to market and grow their business.

Recruiting these freelancers or offering them free access to your service is one way to obtain monthly recurring revenue (MRR).

Another way to gain MRP is through the creation of your own content – whether it’s a how-to article, a diary entry, or even a full length book.

By producing your own content, you can still offer it for free or low cost while earning income from the sale of advertising space or premium packages.

In this article, we will look at some ways to calculate monthly recurring revenues for each of the three main areas mentioned above.

Multiply transaction size by monthly recurring revenue

how to calculate monthly recurring revenue

Now that you have determined your cost of goods sold, you can move onto calculating your monthly gross profit. To do this, multiply your total sales volume (COS) by your monthly recurring revenue (MRR).

Your MRR is simply your monthly subscription or service fee times the number of people who use the product or service per month. For example, if your business offers free access to an online tool for one year, then your yearly MRP is one year multiplied by 12 months which equals $168!

Now that we know how to calculate monthly gross profit, it’s time to determine whether or not your business has a cash cow. A cash cow is when you cannot easily add new expenses such as buying equipment or paying off debts because of its steady income.

If you find yourself in a situation where adding additional money into the business doesn’t seem like a good idea due to no significant increase in income, then you probably have a cash cow.

Subtract discounts or refunds

Discounts and refunds mean that your product no longer makes sense for your customer, so they are looking to get their money back.

Discounts are when you sell a product at a lower price than its regular cost, which is why people usually like them. A common example of this is buying a book at full price then selling it later at a discounted price.

Refunds are when a person returns a product and therefore doesn’t want yours anymore. For instance, if they bought an item for $25 and now they want their money back because it didn’t work, this would be a refund.

By adding up all these costs, we can calculate how much monthly recurring revenue (MRR) you will have coming in.

Multiply result by 1.25

how to calculate monthly recurring revenue

Another way to calculate monthly recurring revenue is to multiply your current revenue per month x1.25. This multiplication factor comes from how much it costs you to maintain your product or service each month.

If we use our example again, say you spent $500 every other week to market your business. That’s over $16,000 a year! A lot of money if you didn’t have that income source before. Now, let’s assume there are twelve months in a year and you spend that same amount once per month.

Add transaction fees

how to calculate monthly recurring revenue

Transaction fees are one of the largest components in determining how much money you make off your apps. These can be monthly subscription fees, API usage fees, or paid services used within your app.

There is not just one standard way to include these costs in your calculations. What works for one company may not work well for you or your competitors. When calculating MRR, look at all sources of cost very carefully to get an accurate number.

Some of the most common ways to account for this are: “gross margin”, “net income”, and “discounted net income”. All three of these will give different numbers so it is important to know which one makes the most sense to you.

Multiply result by 1.02

how to calculate monthly recurring revenue

Another way to calculate monthly recurring revenue (MRR) is to take your gross profit per month and divide it by an appropriate time frame.

The most common time frames are daily, weekly, or monthly. To determine how many days each period covers, multiply duration of the period by number of days in that given period. For example, if the monthly period is one month then 30 is multiplied by 28 to get 56 as the length of the month.

Divide result by 100

how to calculate monthly recurring revenue

Now that you have determined your monthly cost, you can calculate your monthly recurring revenue (MRR) by dividing your monthly service fee by 100.

This way, your MRR is calculated in per cents rather than dollars. For example, if your monthly service charge was $1,000, then MRP would be 0.01%. Or, if your monthly service charge was $10,000, then MRP would be 1%!

By using percentages instead of numbers, it becomes much more straightforward to determine which products or services are making enough money for their owners. You will know when a product or service is no longer profitable because its percentage goes up instead of down.

That being said, there is an important distinction to make here. When talking about gross revenues, we should only include those that are directly attributable to the business. This includes things such as advertising fees, royalty payments, etc.

But what about other indirect costs like server hosting? I mentioned earlier that this is typically around $100 per month, but what happens when the weather is bad and people don’t use the website as frequently? If the owner doesn’t require any additional income from the site, why pay the bill every month?

Deducting these types of expenses from the MRP calculation makes the MRP inaccurate.

Multiply result by 1,000

how to calculate monthly recurring revenue

Now that you have determined your monthly revenue, you can multiply this number by one thousand to get your annualized revenue! This will give you an even more in-depth look at how well your business is doing.

By looking at both monthly and yearly revenues, we are able to determine if your business is growing or shrinking and whether there is any significant change in the amount of money it makes.

This article also helps us identify whether or not your business is profitable since we can compare our monthly revenue with what we pay for services and products to see if we make enough profit.

You should always do your best to maintain a steady flow of income so that you do not need to worry about whether or not you will be paid next month. This will help ensure that your financial situation does not become unstable.

Subtract advertising revenue

how to calculate monthly recurring revenue

Advertising is the main source of income for most online businesses- that’s why it is important to understand how much money they make off of advertisements.

Most companies will pay an advertiser per click on their advertisement or ad spot. This is usually done through an agency or business that advertisers hire to manage their ads. The agencies get a percentage of what you earn, depending on how many clicks your advert receives.

This means that the less people who view your advertisement, the lower your earnings will be! Companies are conscious about this fact, so they try to create as engaging an advertisement as possible.

That way, more people will spend time looking at your advertisement and clicking on it, which can then boost your monthly recurring revenue (MRR). Some ways to do this include using pictures and videos, writing in a natural tone, and offering different discounts if someone visits your site or comes from another linked website.

You should also check out our article: Tips To Increase Website Traffic For More Business.

About The Author

Tiara Ogabang
Tiara Joan Ogabang is a talented content writer and marketing expert, currently working for the innovative company With a passion for writing and a keen eye for detail, Tiara has quickly become an integral part of the team, helping to drive engagement and build brand awareness through her creative and engaging content.
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