Monthly Recurring Revenue, or MRR, is a widely-used performance indicator in the world of subscription billing. However, the industry supports wide variations in the definition of MRR, and also allows for a lot of leeway in how each individual company chooses to calculate it. Fusebill supports two common calculations of MRR - "Current" and "Committed" - and has applied best practices from across the industry to the calculation of these two metrics.
How Does MRR Work?
It is important to understand some details about how MRR works in a system like Fusebill so you can understand how your numbers are calculated.
MRR ≠ GAAP Revenue
One common misconception is that MRR is the same as the GAAP (Generally Accepted Accounting Principles) Revenue for the month in question. This is not true. It is not an "accounting" measure; rather, it is a business measure that helps the owners of the subscription business understand how the recurring revenue is changing month over month. This is an important distinction; you should not expect your MRR in Fusebill to exactly equal the numbers in the Earned and Deferred Revenue reports.
"R" is for "Recurring"
Also remember that this revenue number only includes recurring charges, and more specifically, those which can be reliably predicted to recur every month. For this reason, Fusebill does not include one-time charges within subscriptions or one-time purchases outside of subscriptions in the MRR calculations. Similarly, recurring products that have resetting quantities are not included in MRR because the quantity is reset to 0 on each recharge and therefore is not a "predictable" source of recurring revenue.
"M" is for "Monthly"
And finally, remember that the "M" at the front of the acronym stands for month. This means that all charges in the system will always be "normalized" to the unit of one month, generating a change in MRR as if the charge occurred for the whole month, not just a portion. This is especially important when considering pro-rated charges for quantity changes, for example. The increase in MRR due to such a price change will never be prorated; it will always be calculated as if the charge happened for the entire month period.
"Current" vs. "Committed" MRR
Fusebill calculates two types of MRR, "Current" and "Committed". Both of these values are being constantly updated by the changes you make to your Fusebill environment, and you can choose which one of them to view in your Fusebill UI at any time at the account level. See Configuring Display Defaults for more information about how to change your MRR view.
Note: The MRR calculations in Fusebill are done separately from the "live" system so they are always current as of the previous day's data. Changes made today will impact your MRR calculations tomorrow.
This is the type of MRR that Fusebill has traditionally measured. The main difference between this and Current MRR is that it is based on the next charge that will occur on the specific subscription or subscription product. Customers who are primarily selling monthly subscriptions would normally use this MRR calculation as it represents the expected MRR based on the next recharge amounts of all subscriptions in your customer base.
The issue with Committed MRR is more noticeable when you have a lot of multi-month or annual subscriptions. In this case, if you have a current annual subscription at $120/year ($10/month), and you set the next recharge amount to, say $240, then your MRR calculation will immediately jump to $20/month as soon as you make that price change, even though that change may not come into effect for several months. That subscription is "committed" to charging $240 the next time it charges, so your "Committed" MRR is $20, but your actual earned revenue will not change until the time that that charge occurs.
This calculation of MRR is more recent in Fusebill. It uses the last charge for each subscription or subscription product to calculate the MRR value. For most monthly subscriptions that do not change often, there is really no difference between Current and Committed MRR; that subscription will always contribute the same amount. However, for multi-month and/or annuals, this is usually the preferred calculation of MRR for the reason mentioned above. In that example, the Current MRR would be calculated based on the last annual fee charged - $120/year or $10/month - and would not change until the 2nd year is actually charged at the new price of $240/year or $20/month.
Factors that Influence MRR
There are several other factors that can influence how MRR is calculated or adjusted based on changes in your system. For example:
- Charge timing
- Start of Period (SOP) charges or quantities set to charge immediately will have an immediate impact on both Current and Committed MRR.
- End of period (EOP) charges or quantity change charges will have an immediate impact on Committed MRR, but will not impact Current MRR until the charges have actually occurred. Note that this means an end of period charge will not show up in Current MRR until the month following its consumption.
- Price Changes
- Changing the price on an upcoming recharge will not impact Current MRR; it will impact Committed MRR. This includes any scheduled price uplifts that may be in place (see Managing a Price Uplift Schedule).
- Fusebill calculates and stores both Gross and Net MRR values for each of Current and Committed MRR (so, a total of 4 values). Discounts are counted in the Net MRR calculations and have the same kind of impact as changes in charges would have (e.g. the growth or contraction of MRR based on the addition or removal/expiry of discounts at any given time).
MRR Quick Reference Table
Below is a table of the various types of changes and events that can occur in Fusebill, and how they impact both Current and Committed MRR. The table also shows what type of MRR (New, Expansion, Contraction, and Churn) each action will produce.
|Action or Event||Contributes to||Current MRR||Committed MRR|
|Re-charge (with no changes)||N/A||No impact||No impact|
|Add a discount or coupon||Contraction||On next recharge||Immediate|
|Remove/expire a discount or coupon||Expansion||On next recharge||Immediate|
|Quantity increase||Expansion||If charged immediately, growth is immediate If charged at end of period, growth occurs when the charge occurs (at the beginning of the next billing period)||Immediate, regardless of charge timing|
|Quantity decrease||Contraction||On next recharge||Immediate|
|Increase price||Expansion||On next recharge||Immediate|
|Decrease price||Contraction||On next recharge||Immediate|
|Include a new product||Expansion||On next recharge (immediately if set to charge immediately)||Immediate|
|Un-include a product||Contraction||On next recharge||Immediate|
|Reverse a charge||Contraction||Immediate||No impact|
|Re-charge after a reverse charge||Expansion||At the time of the re-charge||No impact|
|Customer is placed on Hold or is Suspended||N/A||No Impact||No Impact|
|Customer is removed from Hold or Unsuspends||N/A||No Impact||No Impact|
|Customer/Subscription is cancelled||Churn||Immediate||Immediate|
|Subscription Product Expires||Contraction||Immediate||Immediate|
|Unexpire a Subscription||New||On next recharge||Immediate|
|Subscription Scheduled Activation||New||At time of activation||At time of activation|
|Sub-Product Scheduled Activation||Expansion||At time of activation||At time of activation|
|A Subscription is Migrated from||Contraction||Immediate||Immediate|
|A Subscription is Migrated to||Expansion||Immediate||Immediate|