Monthly recurring revenue (MRR) is income that a company can reliably anticipate every 30 days.
Both the managed services and cloud services business models have MRR as a key component. In the managed services model, the managed service provider (MSP) collects recurring revenue by managing clients' IT systems for a fixed monthly fee. The monthly fee can cover a range of agreed-upon services under an outsourcing agreement -- such as mobile device management or managed print services -- that the MSP delivers to the client. The monthly fee is specified in the managed service contract between the MSP and client.
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For IT solution providers, there are several benefits that are commonly associated with a recurring revenue model, especially when compared with transactional models. A solution provider that creates MRR streams can achieve a steady cash flow, which can protect the company's bottom line more consistently than if the company were subject to fluctuating project-related business. Additionally, an MRR cash flow can provide a better handle on budgetary objectives than would be possible for companies that only carry out transactional business. Budget-wise, clients also can benefit from paying a fixed fee instead of variable and sometimes unpredictable IT expenses. IT solution providers can derive monthly recurring revenue (MRR) from a number of sources, such as license renewals; service, support and maintenance contracts; and Software-as-a-Service and Infrastructure-as-a-Service subscriptions. MRR excludes one-time or adjustable fees as well as one-time product sales.
While the advantages of the recurring revenue model and MRR streams may appeal to transaction-based value-added resellers and other solution providers, companies that decide to transition to an MRR-based model such as managed services -- or add MRR to their existing revenue model -- can be faced by a number of challenges. A transaction-based company that shifts to a managed services model must sign up a high volume of managed services customers to make up for revenue the company would have otherwise brought in from hardware/software sales or project work. Transitioning can often demand that companies streamline their technical operations, determine a pricing strategy and restructure their sales teams. In many cases, companies retain their legacy line of transactional business while gradually switching over into the new line of recurring revenue business.