Monthly Recurring Revenue vs. One‑Time Sales: Which is Better for Your Business?

What is monthly recurring revenue?

Monthly recurring revenue, or MRR, is the predictable and consistent revenue that a business generates every month from its customers' subscriptions or recurring payments for products or services.

MRR, specifically, is used by subscription businesses to track income related to subscription-based sales. Anything a business can sell that includes an automatic renewal would fall under this classification.

This could be a monthly basis for a digital subscription, like Netflix, or an auto-replenishment for razor blades. It could include your insurance, a retainer fee for a lawyer, or just about anything that brings in recurring revenue.

When such a subscription exists, MRR stands to help you keep track of how much money is coming into the business through such subscriptions. Some businesses have MRR combined with one-time sales. Other businesses rely solely on MRR.

How to calculate MRR

So now that we’ve gone over what MRR is, you’re probably wondering how to calculate monthly recurring revenue.

There are a few ways to calculate MRR, and you don't need a monthly recurring revenue calculator to do so. In fact, you can calculate MRR with a simple monthly recurring revenue formula, which is:

Number of active customers x Average revenue per customer = MRR

All you have to do is figure out what the average revenue is for each of your subscribers and multiply that average revenue number by how many subscribers you have.

If you don’t have monthly subscriptions, you’ll need to calculate monthly recurring revenue using an adjustment factor. For example, if you do annual subscriptions, you can use the above method to calculate the annual recurring revenue and then divide that by 12.

You can also do more complicated MRR calculations that look at different revenue sources and fluctuations, but that will depend on a few more factors that we’ll go over in a later section.

Benefits of monthly recurring revenue

So, why is monthly recurring revenue important, and is it better than one-time sales?

There are many benefits to calculating your MRR, but the most important is that it helps you track income for your business. Looking specifically at MRR will help you understand how valuable your subscription offers are and how much revenue you bring in.

If your business offers both subscriptions and one-time sales, the MRR lets you see which one is more effective.

As compared to one-time sales, MRR also tends to be a little more stable. People who sign up for a monthly subscription will continuously bring in money, while people who occasionally purchase from you might not be as reliable and dependable in terms of recurring revenue. Adding subscription elements to your business model can do a lot for stability and long-term growth.

What are the different types of MRR?

You can break MRR into several different types. Some focus on increasing revenue, while others help account for lost revenue. Put them all together, and you get more than just a net change in monthly income.

With the different types of MRR, you can get insights into how and why your revenue is increasing or decreasing each month, and you can use this information to help guide your business decisions.

These are some of the different types of MRR you may come across:

New MRR

This is probably the simplest type of MRR. New MRR is revenue from brand-new customers.

For example, if you sign up for a gym membership, you will be billed every month. The first month you go through the paperwork and get started is when you are counted as the new MRR for that gym.

Expansion MRR

Expansion MRR is the amount of additional revenue that comes from existing customers.

For example, let's say you sign up for a basic gym membership, and after the first month, you decide to add access to one-on-one sessions with a trainer. These sessions cost more and contribute to the company's monthly revenue, so you’re being counted as expansion MRR for that month.

Expansion MRR counts all revenue that would fit into this category for a business. Knowing this, you might find that you earn more revenue through expansion MRR than new sales.

Churn MRR

Churn MRR is the opposite of expansion MRR and measures lost revenue. More specifically, it’s counting the revenue you lost from canceled subscriptions.

For example, if you decide to cancel your gym membership, then the first month that you are no longer a paying member, you would be a part of the churn MRR.

Reactivation MRR

Reactivation MRR happens when a former customer who canceled comes back.

Sticking with the gym example, let's say you canceled your membership and realized you were doing well with your trainer, so you signed up again. You’re not exactly a new customer, but you weren’t counted as MRR last month. This distinction helps track the overall monthly revenue for the gym.

Net new MRR

Net new MRR looks at the total net change in revenue and helps you see the overall MRR growth rate.

To calculate this, you would need to add the new MRR, expansion MRR, and reactive MRR and subtract the churn MRR. The end result will show the total net change in revenue as it stems from memberships.

How does MRR differ from one-time sales?

There are a few key ways that MRR and one-time sales differ. Let’s start with the most obvious: MRR provides more predictable revenue, while one-time sales are more volatile and depend on external factors.

With MRR, most businesses can get a feel for their churn rate, and that can help them understand what their average monthly revenue is going to be moving into the future.

MRR models can also help businesses focus on the most efficient way to improve their performance and overall revenue growth. Maybe you need to increase online sales with new MRR, or perhaps expansion MRR will get you more value in the long run. It depends on the business.

Meanwhile, one-time sales are all about simply increasing the number of those sales. With one-time sales, you have to think about rapid price fluctuations, how and when you want to change what you offer, your pricing plans, how to advertise to get more customers, and how to get your current customers to spend more each time they make a purchase.

Which is more beneficial for your business: MRR or one-time sales?

So now that you know the difference between MRR and one-time sales, you're probably wondering which is better for your business.

Ultimately, the answer to this question depends on your industry, business model, and various other factors. But let's break it down into a few more examples.

A clear example of MRR is streaming services like Netflix. The goal of something like Netflix is to avoid one-time purchases altogether and increase the customer lifetime value.

But on the other hand, Walmart is one of the most successful companies of all time, and it’s built entirely around one-time purchases.

The key to a one-time purchase business model still involves repeat sales, but you don’t need a built-in monthly billing cycle for it to work. In general, retail, professional services, and trade skill industries all thrive on the one-time purchase model.

Choose the right revenue model for your business

At the end of the day, the right revenue model for your business depends on various factors, such as your industry and market, customer behavior, and cost structure. But choosing the right revenue model is crucial for the success of your business so that you can generate revenue and make a profit.

If you want to increase your revenue and lead your business to success, you need the right resources to do so, which you can get through Mailchimp. Mailchimp offers various tools and resources that can help with everything from improving your sales skills to building a more effective sales funnel.

With Mailchimp, you can increase revenue through personalization and expand how you reach your target audience, leading your business to more revenue growth in the future.