It can be said that MRR is even more important for companies in the SaaS or Software as a Service world , since it is the number that unites the financial and strategic sectors, defining the future of the company.
Keep reading to discover how to calculate your business’s MRR, its importance for strategic planning, and, of course, some foolproof tips to increase your monthly recurring revenue.
What is MRR?
MRR is the calculation of how much a company will receive monthly for subscriptions to use its products or services . It is through dominican republic phone number list this metric that business leaders can predict monthly earnings and, consequently, plan future investments.
There are managers who believe that MRR is the most important index for SaaS companies. The justification is that, through this well-done calculation, the software roadmap will be created in the most realistic way possible.
It is worth mentioning that, when calculated correctly, MRR will give the company’s growth predictability. Once it is possible to know when contracts with your clients must be renewed, for example. On the other hand, there is also greater control over how much each churn is impacting your Monthly Recurring Revenue .
In short, by calculating the MRR it is possible to monitor the arrival of new customers, contract renewals and churn (subscription cancellation).
As we said, MRR links the financial side with the strategic side of your client. When calculated correctly, MRR is the best way to make forecasts, identify bottlenecks and seasonal behaviors .
How to calculate MRR?
It is common to make mistakes when calculating the MRR by adding up all the contractual values that you are to receive monthly. This could be correct, but before confirming it, you should look at whether there is any variable that may impact that value.
Before showing you in a practical way how to calculate your company’s MRR, we will explain the factors that must be considered when doing the calculation.
Number of monthly subscriptions
To begin calculating MRR, you need to know how many subscriptions there are and the value of each one. This number is the basis of the calculation. In the case of a company that works with plans of different values, it is crucial to identify how many subscriptions there are for each of the different types of contracts.
Expiration of contracts
Knowing the total number of contracts your company has, you need to check the expiration dates of each one of them. The goal is to know how much non-renewed contracts can impact your MRR .
From an operational point of view, the responsible team will then know where to concentrate their efforts in order to renew the contracts.
Non-recurring fees
Don’t forget to consider the values that are not repeated . For example, the hiring of some extra service. In addition, when we talk about SaaS companies, it is common to have implementation fees charged, which must also be considered in the calculation of the MRR.
At this point, it is also important to consider the promotions and negotiations of the monthly payment values that you offer to clients.
Churn MRR
Churn is nothing more than customer turnover. Therefore, it is an extremely important value for calculating your MRR. In the end, when someone cancels their subscription, the monthly payment stops. As a result, you will receive less money at the end of the month on a recurring basis.
MRR of new sales
Just as canceled subscriptions must be taken into account, new sales are also essential for the calculation. Considering new sales and churn, it is possible to notice that not every month your MRR will be the same. In addition, it is by this balance between these two factors that the MRR forecast for the future is made.
A single coin
In the hyper-connected world we live in, it is common to offer a service or product in more than one country . Therefore, to know the real MRR, it is important to convert the values to a single currency, preferably that of the country of origin of the business.
MRR Calculation
After identifying and calculating all the variables, the list of monthly payments that will be due must be made.
Let’s take a practical example. Let’s say I have an app similar to Netflix and to use it you have to subscribe. Currently my app has 2 thousand subscribers and each customer pays $100 monthly.
The calculation would be:
2,000 x $ 100 = $ 200,000
To ignore the values of the variables mentioned above, we only need to subtract the total value from their sum. Or do the sum, in the case of referring to new sales or upgrades.
Let’s visualize it better with the previous example. We had 50 new customers in the month, but we lost 10 subscribers. So, the calculation looks like this:
2000 x $100 + (50 x $100) – (10 x $100) = $204,000
It is important to understand the differences between these values. That is why the amount we add is called MRR for new sales and the number we subtract is known as churn MRR .
We must show these segmented numbers to the team so that everyone has a visualization of the strengths and weaknesses of the process.
Calculating average earnings
Another important metric is average emotional impact is the main revenue, and it is directly related to your MRR. Average revenue is also known as ARPU , which stands for Average Revenue Per User .
It is thanks to this value that the main drivers of growth, as well as its barriers, can be analysed. To find out the average revenue, it is enough to divide the total profits generated in sales by the number of customers in a given period.
How to increase MRR?
One of the most important reasons that changsha mobile phone number list encourages calculating MRR is to identify how much you are earning in order to create actions and strategies to increase it .
To prevent this indicator from becoming frustrating for you, we have selected some tips to show you how to increase your MRR. Check them out!
1. Customer loyalty
The famous Philip Kotler already stated that acquiring a new customer costs 5 to 7 times more than keeping an existing one. Also, when we showed you how to calculate MRR, it became clear how your churn rate impacts your monthly recurring revenue, right?
This proves the importance of having customer loyalty in your strategic planning . You must understand why your customers use and maintain their subscription to your services . This way, the customer success team can work with a focus on these strengths of your solution.
There are thousands of actions that can be taken to retain your customer . You must understand which is the best option for your business. However, the most important thing is to work so that your customers and users are successful with your business.
2. End of unlimited plans
When defining the price of your product or service, it is very common to use plans. But this strategy can become a villain when the objective is to increase the MRR .
Typically, companies that use the plan strategy offer the option of an unlimited plan. This means that the customer can use what they want and how much they want by paying a certain amount. In other words, while consumers have unlimited access, your rent has a fixed and limited value.
The secret to using a plan strategy to grow your MRR is to find the balance between what you offer and what you charge.
The more customers there are, the higher the MRR should be, right? That’s why, when thinking about increasing the company’s monthly recurring revenue, it is essential to improve and work on strategies for attracting new customers.
Therefore, evaluate new acquisition channels. Use online and offline marketing strategies . Build your buyer persona in order to better understand your customer and approach them more easily and efficiently. Monitor sales metrics daily to act quickly if you identify a bottleneck or something that is not generating the expected result.
Did you like our recommendations? Then read this other article that will help you even more with your business: Marketing for SaaS: learn the main tools and learn how to control, monitor and measure your company’s results.