Sep 28, 2024
Do you ever wake up in the morning feeling like you don’t know whether your subscription business is truly growing or shrinking?
If Yes, You're not the only one.
Most of the businessmen get bogged down by all these numbers and do not know which one is important. This is where Monthly Recurring Revenue or MRR comes in – MRR is this magical metric for any SaaS business.
If you aren’t tracking it, then you lack key data that you could need when making decisions for your business. That is wrong and can make your progress extremely slow. But don’t worry right now we are here to help you.
In this post, we'll break down MRR for you: what it is, why it is useful, and how it can be used to increase your commercial advantage.
What is MRR?
Monthly Recurring Revenue (MRR) is the most important metric for subscription-based companies. It refers to the expected total predictable revenue from all active subscriptions that a company anticipates to receive in a specific month. MRR gives you a normalized value of your recurring income, decoded in terms of different pricing strategies, and the billing frequency.
This important indicator reflects the overall financial condition at the moment, allows to calculation of expected revenues in advance, and serves as a basis for management decisions. By following the MRR, businesses can have predictable and reliable mechanisms to determine increase, expansion, and the management of the uncertainties of the subscription economy.
How to Calculate MRR?
To calculate MRR, use this simple formula:
MRR = The number of customers * Average Revenue Per User (ARPU)
Here's how to do it:
1. Sum up the monthly fees of all the currently subscribed services.
2. If you have annual subscriptions, then the annual fee should be divided by 12.
3. Sum up all monthly values
Example:
If you have 100 customers and your average monthly revenue per customer is $50, your MRR would be: 100 × $50 = $5,000
Types of MRR
Knowledge of various MRR models lets you define new opportunities and possible problems. Here are the main types:
1. New MRR: Revenue from new customers
Example: 10 new customers subscribed $100/month plan = $1000 New MRR
2. Expansion MRR: Incremental spending from existing customers (add-on, upsell)
Example: 5 customers going from $50 to $75/month = $125 Expansion MRR
3. Churn MRR: Amount of money which would have been generated but which is not due to cancellation or downgrade.
Example: $200/month X 3 = $600 Customer attrition MRR
Monitoring such MRR types assists one in knowing the revenue generated and the lost revenue.
Benefits of Tracking MRR
The following are the benefits that businesses have when tracking their MRR: Here are the key benefits:
1. Performance measurement
Quickly assess the health of your business as well as its month-over-month growth rate. MRR is an unambiguous measure that enables tracking a company’s achievement and success.
2. Revenue forecasting
Forecast future earnings more precisely. Consistent MRR data enables the company to make appropriate forecasts of its future financial situation.
3. Business decision-making
Get insights to make wise decisions concerning investment, employees, and growth. MRR is a reliable platform from which marketers can start the planning process and allocate the available resources.
Tips for Improving MRR
Optimizing Monthly Recurring Revenue (MRR) is the primary goal that has to be addressed in companies that offer their products and services based on subscriptions. Here are some effective strategies to enhance your MRR:
1. Reduce churn:
Increase product quality and other customer services
Create a feedback loop for the customer
Long-term commitments should be encouraged
2. Upsell and cross-sell
Design additional products or paid services
Customize the offers to upgrade
Offer discounts for the products in a package deal
3. Acquire new customers
Better your marketing funnel
Reward programs
Expand opportunities for selling new products
Conclusion
MRR is not just a figure on the balance sheet, but a crucial indicator guiding the future development of a subscription-based business. Monitoring and optimizing MRR not only allows you to gain insights and make better decisions but also to achieve real and long-term business success. Begin targeting your MRR now for your business to grow strong.