Whether you’re a sales leader, a manager, or a rep, revenue is your ultimate bottom line, your metric for success. It helps you evaluate the performance of the business, team, and individual contributors. Monthly Recurring Revenue (MRR) measures your recurring revenue normalized into a monthly amount. It’s a metric most commonly used by subscription and SaaS-based businesses.
What is Monthly Recurring Revenue?
Recurring revenue is the heart of these companies; with it, you don’t have to worry about one-time sales that may or may not repeat. The monthly recurring model will let you look at revenue trends over time to compare the MRR to the monthly signup rate for your offerings, customer retention, and monthly account growth rate.
This analysis will always give you an accurate status update on your company’s performance, letting you know whether your revenue is growing or shrinking. This will allow your sales leader to optimize their game plan for the future.
How to Calculate your MRR:
What is the formula to calculate your MRR? It’s simple.
# of customers * average billed amount/month = MRR
For example, if you have 100 subscribers, and each customer pays an average of $10 every month, you’ll have a monthly recurring revenue of $1,000.
100 customers * $10/month = $1,000 MRR
Types of MRR:
You can go one step further and break down your MRR into different types to look at revenue growth and trends to identify areas that can be improved.
New MRR: The monthly recurring revenue exclusively generated by calculating payments made by new customers.
Expansion MRR: This calculation represents the additional monthly revenue generated by existing customers. Also known as an upgrade, the result is calculated from either upsells or cross-sells.
Churn MRR: Some customers will inevitably cancel or downgrade their subscription or service; this calculation highlights the subsequent revenue loss. This calculates the revenue that’s lost due to customers canceling or downgrading.
Net New MRR: This variant can only be calculated after the types above are analyzed. It is the complete summary of your monthly recurring revenue; the formula for that is:
New MRR + Expansion MRR – Churned MRR = Net New MRR
Tips to Grow your MRR:
As useful as recurring revenue is, it can be one of the most frustrating metrics to follow. It’s normal to put in months of hard work, coming up with and launching the best marketing campaign your team can muster, and not have it convert into figures that improve your bottom line. But don’t worry, there are steps you can take to maximize your MRR.
Focus on your value perception
Your product’s quality should always come first as it’s the primary factor your customers will turn to when deciding whether or not they should subscribe. If or when you’re satisfied with your offering’s qualitative value, you need to make sure that it’s clearly conveyed to your customer base. Pairing high-quality content with clear communication channels is guaranteed to keep your subscriptions active and your MRR growing.
Surprisingly, most companies drastically underprice their products. If you’re solving real, tangible problems for customers, you shouldn’t be charging single-digit amounts (pennies). If you’re unsure about how to price your business, a good tactic is to double it, then check back in a month to see its impact on conversion rates, and reevaluate accordingly.
Upselling is Key:
Customers are more likely to trust a company they already have experience with. That’s why it’s easier to grow your revenue from your existing customer base than from the acquisition of new ones. You’ll still need both; however, customer acquisition tends to be more expensive. Ensure that the customers you’re serving are getting more value from your business over time (just make sure that you match it with your pricing). The value your company provides should always be more than the price they’re paying, but should also grow in parallel.
Dump your Free Plan:
It’s a reality that free plans and advertising-based models had become a default practice amongst content-driven and subscription-based businesses. However, removing your free option can be a great way to increase your MRR. When you offer too much for free, it’s a fact that upgrade rates decrease; while reducing free plan features or using time-restricted free trials have been proven to increase upgrade rates.
Offer Yearly Prepaid Plans:
Offering annual prepaid plans will dramatically increase your customer retention rates. However, keep in mind that enticing customers to sign up for a year-long commitment can be difficult, which is why it’s vital to sweeten the deal by offering discounts or throwing in other incentives to convince the customer to commit to a longer period than they usually would.
Food For Thought:
Understanding your monthly recurring revenue and strategically implementing changes to keep developing is the best way for companies to continue improving their revenue streams.
There is nothing more significant to your business than knowing what MRR is, how to calculate it, and continue growing it. However, keeping track of the numerous metrics and their calculations can take precious time away from your business.