MRR (monthly recurring revenue) is a predictable revenue a certain subscription company can obtain every month. It helps a company forecast the monthly profit margin, assess the health of a business, and make strategic decisions about the budget, investments, and preferred strategies.
In this article, we’ll explore the importance of MRR and compare it with ARR. We’ll also find out how to estimate MRR and increase it.
Why is MRR important?
Companies that offer subscriptions use the metric to evaluate revenue every month. These businesses always have new users who sign up and regular clients who churn out. By calculating the indicator, entrepreneurs can find out the changes in their constant monthly revenue. As a result, the company's team has a clear picture of the current situation: increases or decreases in their constant profits. Monthly recurring revenue shows the current brand’s condition so that its team can forecast future revenue and make wise decisions about the budget and investments.
Monthly recurring revenue is critical for business owners since it provides them with an understanding of a possible income from every customer each month. The model allows a company to obtain information on future cash flows and budgets. This way, business owners are aware of the condition of their companies, they can track the revenue they receive and forecast the profit a company can attain when it prospers.
Now that you know about the importance, let’s find out the difference between MRR and ARR.
MRR vs ARR
Both measures are important for tracking performance, estimating profits, and receiving updates on a company's health. Yet there’s a slight difference between MRR and ARR (annual recurring revenue). It lies in the timeframe for which this indicator is calculated. While companies estimate monthly recurring revenue to find out how much all their customers pay monthly for subscriptions, annual recurring revenue indicates the sum of money a business receives annually.
So, if you want to see the immediate results of your business, you should calculate MRR. However, when you want to find out about the performance of your company during the year, consider using the ARR formula to estimate the metric.
It’s time to figure out how to estimate the measure.
How to calculate MRR?
To obtain the metric, you need to multiply the number of customers per month by the sum of money each of them pays for a monthly subscription. Say, you have 5 clients per month and they pay $150 for a subscription.
MRR = 5 * $150 = $750
In this case, your monthly recurring revenue would be $750.
Let’s imagine that you have 9 customers who pay $170 per month and 4 customers who pay $120.
9 * $170 + 4 * $120 = $1530 + $480 = $2010.
So, your MRR would be $2010.
Now let’s figure out how to boost your monthly recurring revenue.
How to increase MRR?
Implement special strategies to improve your MRR.
- Present additional features. There’s no need to combine all your features in one package. This is since clients probably won’t use all the features their plan offers at once. Separate your features so that customers can add them to their main package on demand.
- Consider upselling. To increase a customer's monthly spending, think about a powerful marketing strategy like upselling. Offer a more expensive plan that opens more possibilities for customers or some new features your company releases. Besides, survey customers to find out what additional features they would like to have. Afterward, add it to the plan for a higher price.
- Expand customer acquisition channels. To bring in new consumers, you need to find the most appropriate platforms. You can generate new customers through online and offline mediums. To do this, you need to invest in paid search, email marketing, referral programs, offline events, online training and webinars, social media, etc. If you don’t know how to define the most effective channels for your business, run an experiment. Select the platforms which have the biggest influence and bring the highest ROI, and use them to run campaigns. Then, gauge the performance of each channel to find out the most successful and allocate resources to the most effective platforms.
- Offer to pay annually. If you have only a pay per month option, create annual plans. Allow customers to save money by choosing plans billed annually. These plans are usually cheaper in price. Clients who prefer to stay with you for 12 months will help you improve customer retention and profit margin.
- Pitch a free plan. Although a free plan can’t help you with boosting monthly revenue, it’s useful for building brand awareness and taking a larger market share. You’ll be able to bring some new customers and promote a paid plan that has no functionality limitations.
Congrats, now you know the importance of MRR, tips to estimate and improve the metric. Consider the tips above to improve your monthly recurring revenue.
Last Updated: 12.08.2021