How the system calculates MRR—Contracts

The system uses the following values to calculate MRR (monthly recurring revenue) for contract lines containing MRR items:

  • Contract line start date
  • Contract line end date
  • Total contract line amount (does not include usage)
Only items with Item type = "Non-Inventory" or "Non-Inventory (Sales only)" are included in MRR calculations. However, kit items are not included in MRR calculations.

When the contract line term includes only whole periods

When the contract line term is a whole year term or a number of whole months, the system basically does the following:

Total contract line amount / the number of months in the contract term

For example, say you have a contract line with a total of R12,000 spread over a one-year term starting January 01 to December 31. The system divides R12,000 by 12 months, with the result that the contract line has an MRR amount of R1,000.

When the contract line term includes partial periods

The system calculates MRR differently if the contract line term includes partial periods. In this case, the system prorates the partial periods and subtracts them from the total contract line amount. The system then divides the remaining amount by the number of whole periods. That amount becomes the MRR amount. Let's walk through an example:

Say you have a contract line with a total of R10,000 spread over a partial-year term starting March 15 to December 31. The number of days in the partial-year term is 292. The system calculates the MRR as follows:

(10,000 /292 = 34.246575342466) * 17 days for the partial period March 15 - March 31 = 582.20

(10,000 - 582.20 = 9,417.80) / 9 whole periods = 1,046.42

The system will use 1,046.42 as the MRR for this contract line.

If the day of the month in the contract line end date is one day earlier than the day of the month in the contract line start date, the system considers the periods in between to be whole periods and therefore does not calculate partial periods in this case.

MRR calculation examples

The following table shows examples of MRR calculations for different contract term lengths within the same year:

MRR contract calculation examples
Contract line start date Contract line end date Total contract line amount MRR amount
January 1 December 31 12,000.00 1,000.00
January 15 June 14 5,000.00 1,000.00
January 15 December 31 12,000.00 1,038.07
January 31 December 31 11,000.00 1,000.00
January 17 August 8 6,800.00 1,005.56