What is monthly revenue? Are you always keeping an eye on your monthly revenue? If so, you’re not alone. For many business owners, monitoring their monthly revenue is a top priority.
But what is monthly revenue exactly? And how can it be used to help your business grow? Let’s take a closer look.
What Is Monthly Revenue?
Monthly revenue is the total amount of money that a company brings in over a month. This can come from a variety of sources, including sales of goods or services, interest on investments, and other forms of income.
What Is Gross Monthly Revenue?
Your earnings and profits are not the same as your gross revenue. The more sales you make, the greater your gross income, but expenses can cut into your net profit.
Revenue is an indicator of how well a business is doing, but keeping this metric in context is important.
The total gross sales in a month is all the revenue from all the products sold, not including discounts or refunds.
When you remove those expenses from your monthly gross revenue, you get the net monthly revenue.
Gross Revenue Formula
The gross revenue formula is simple. Just add together all of your total sale revenues for a given month.
For example, the gross revenue for last month was $11,500. This was generated from the sales of goods and services. Your gross monthly sales are exactly the same as your gross monthly revenue.
The gross revenue is the total amount of money that a business makes, not including discounts and returned items. When you deduct those from the total, you get the net revenue.
If you sold a bunch of faulty goods, your net profit for the month could be significantly lower than your gross revenue.
While gross sales may be a good measure of success, it doesn’t always tell the whole story. Companies sometimes push products out too quickly, leading to a higher number of product refunds. This offsets any gains that are made from the initial sale.
Furthermore, a high amount of sales doesn’t necessarily mean that a company is profitable.
Monthly gross revenue from service-based businesses is a much better indicator of a company’s success. This is because when calculating your monthly revenues, you do not have returns from your sales. Whether it’s yoga lessons or plumbing services, the monthly gross revenue is the better number to look at.
How to Use Gross Revenue
The gross revenue of a business, whether monthly, quarterly, or yearly, goes on the top line of an income statement.
Below that is net revenue.
The next line is the cost of goods sold (COGS). If you make $23,500 on $16,000 worth of products, your gross profit is $7,500.
Subtracting overhead costs such as rent, payroll, utilities, and office equipment, and then taxes gives you net income.
If you have income from sources other than your sales, such as interest earned on money you’ve loaned out, it should be recorded separately from your income.
When looking at your monthly company reports, it is more important to look at your net profits than your total sales. If revenue is up but your expenses are up as well, your net profit margin may go down.
Your earnings may drop.
There are other financial measures found on an income statement such as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
The most important part of measuring your sales team’s performance is consistency. Whether it’s profit margins, sales quotas, or the number of deals closed, it’s important to measure the same metrics.
What is Monthly Recurring Revenue?
It’s much more expensive to attract new customers than it is to keep existing ones.
Some studies suggest that acquiring new customers can cost up to 5 times more.
Subscription and Software as a Service (SaaS) businesses, such as ours, are appealing to entrepreneurs because customers pay a monthly fee for your product or service.
How to Increase Monthly Recurring Revenue
Here are some things you can start doing today to increase your monthly subscriptions.
Make Sure You Are Measuring Correctly
Many startups are making mistakes when it comes to their sales metrics. This isn’t only happening to newer companies, but to ones that are already well funded.
Additionally, a study of the billing platforms that include these analytics revealed numerous mistakes.
Goal Setting for your MRR – The Waterfall Chart
It’s important to remember that your recurring revenue is a monthly figure. One of the best ways to track that progress is through a “waterfall” graph, which shows how your month-over-month growth compares with the days of that month.
The chart should plot the growth rate in your MRR from last month, the growth in your MRR for the current month, and your month-over-month goal for MRR growth. This will give you a clear indication of whether you are on track to reach your monthly goals.
You’ll want to keep a close eye on your waterfall chart each day to make sure you’re making progress toward your monthly goal.
As the end of your month draws near, you may start to regret not starting earlier. Hopefully, your visualization skills will help motivate you.
The importance of monitoring your monthly recurring revenue cannot be understated. By keeping a close eye on this key metric, you open up the possibility for significant growth in terms of both customers and sales. Additionally, reducing churn becomes much easier when you are aware of any changes as they happen.
6 Common Mistakes When Calculating MRR
Calculating your monthly recurring revenue (MRR) is pretty straightforward, but there are a few nuances and special cases that you should be aware of.
Here are 6 things to consider as you dig into your company’s recurring revenue.
1. Non-Monthly Billing Intervals
Monthly recurring revenue (MRR) is the term used to describe the total amount of income you generate from customers regularly. However, it’s not the only way you can charge your customers. You can also invoice them annually, or even on a more frequent schedule.
The most common non-monthly billing interval is annual but quarterly and even weekly billing are also common. To properly include these intervals in a monthly recurring revenue figure, you must normalize them.
So how do you include non-monthly period revenue into a monthly figure? You normalize it.
If you charge a customer $1,200 a year, you can calculate MRR by dividing that by 12. This would give you $100 a month from that client.
What about a weekly subscription? There are 52 weeks in the year, so dividing 52 by 12 gives you 4.33 as a multiplication factor.
If you charged $10 a week, your recurring revenue would be $10 x 4.33 for $43.30 in monthly recurring revenue.
2. Non-Recurring Revenue
MRR is used to measure growth as well as predict the health of a company.
If you include any one-time fee in your monthly recurring revenues, you are misleading yourself.
If a monthly payment isn’t set to automatically renew, it shouldn’t be included in your monthly recurring revenue.
3. Treating MRR as an Accounting Figure
Never use the Monthly Recurring Revenue (MRR) number for accounting and taxes. Instead, use it as a metric for gauging the health of your business.
When you want to delve into the nitty-gritty of accounting and financial terms, you’ll likely come across the terms bookings, billings, and deferred revenue. But MRR is not a term you would discuss with your accountant.
MRR is used to track growth and identify where revenue growth is coming from.
4. Leads and Trials
While a percentage of trials will convert and become part of the MRR, this should be a different metric.
Your conversion rates may be very predictable, but that’s only part of the picture.
You shouldn’t be including customers in your MRR if they haven’t paid you yet.
5. Ignoring MRR Components
Your monthly recurring revenue is made up of several different components. These include things like new subscriptions, expansion, reactivation, contraction, and churn.
Each level of monthly recurring revenue (MRR) tells a different story and provides you with different insights into why customers choose you.
Looking at the top level of MRR can be misleading. A high growth rate could mask a high customer turnover rate.
6. Ignoring Coupons and Discounts
Should you include the full value of $250 per customer in your MRR when you are giving them a 50% discount?
No, you should not.
Perhaps that 50% off deal is for a limited time only, or it’s an ongoing offer.
Calculating your Monthly Recurring Revenue (MRR) becomes much more complicated and hard to do when factoring in all of these different factors. This is why using automated calculators quickly becomes a must.
What is monthly revenue? Monthly revenue is the total amount of money that your business brings in each month. It’s important to keep an eye on your monthly revenue so you can see how your business is performing and make necessary changes if needed. By understanding what monthly revenue is and how it works, you can use it to help your business grow and succeed.