As a business owner, you know you have a ton of numbers to keep up with and evaluate that help you make decisions for your company. Your MRR is one of them. Understanding MMR is fairly simple, but utilizing what you know about your business MRR can have a huge impact on your profits and how you structure sales and marketing.
What is MRR?
MMR, or Monthly Recurring Revenue, tells you how much income your business generates each month. MRR gives you an idea of what you can expect to earn consistently over time. Knowing your MRR enables you to make key decisions for business planning. This metric gives you a clear picture of how much money you have coming in each month that can be reinvested to build your business.
Types of MRR
MRR can be organized into a few different categories. By evaluating specific types of MRR, you’re better able to determine exactly how your revenue is growing and what changes you need to make to increase it even more.
New MRR is monthly recurring revenue that is generated from new customers. The New MRR metric helps you determine if acquiring new customers is financially beneficial or if it costs more than you might think. Looking at your New MRR and evaluating it against your total MRR can give you an idea if you need to adjust your budget so your new customers don’t disrupt your profits.
New MRR also allows you to see trends in your sales and marketing success. If New MRR trends are on an upward trajectory, then you know your acquisitions teams are doing something right.
When existing customers bring in more revenue than your base MRR, you are seeing Expansion MRR. Expansion MRR typically comes from a package or plan upgrade or a cross sell.
Because Expansion MRR comes from existing customers, tracking this metric allows you to study trends in sales and tweak your sales strategies. It’s more cost effective to earn Expansion MRR than to acquire a new customer, so you should closely monitor how effectively your team can upsell or cross sell to your current customer base.
Churn MRR is the revenue you’ve lost as a result of customers cancelling or downgrading. Tracking your Churn MRR against New and Expansion MRRs is essential. Let’s say your business experiences a $2,000 growth one month. That’s great at first glance. But if you aren’t taking into account a Churn MRR of $1,000, you’re missing a big piece of the picture. That is, you’re losing a ton of revenue, even if your total MRR has technically grown.
How to calculate MRR?
Calculating your MRR is fairly simple. First, determine your ARPA (Average Revenue Per Account.) You find this value by dividing the total revenue from all customers by the number of customers you have that month.
Now that you’ve got your ARPA, multiple that by your total number of customers. So, let’s say you’ve got 100 customers, and each customer pays an average of $100 every month. Your MRR comes to $1,000.
5 tips to increase MRR
Once you’ve worked out your MRR, you might find that it’s less than you thought. Or maybe it’s even stagnant. Below are five tips to help you increase MRR and customer retention.
Too many businesses are underpricing themselves in order to beat out the competition. In reality, not charging enough for your products or services puts you in a position where you’ve got to work harder for less income. Charge more for what you have to offer. Customers equate price with value. You want to charge enough so your effort is worthwhile. But by charging more, you also communicate to the customer that your product is worth more than competing businesses who are charging less.
One of the most cost-effective ways to increase MRR is by acquiring more revenue from your existing customer base. If you can increase the value of what you’re offering to your users, then charge for it. Offering upgrades or add-ons makes their lives easier. And people value ease and efficiency—so much so that they’ll pay for it.
Get Rid of Unlimited
You shouldn’t be offering your services for free. Unlimited storage, unlimited users, unlimited anything: it’s costing you. Instead, offer tiered plans that increase in price as the value of what you offer increases. Customers won’t hesitate to pay for products and services that provide value.
Offer Prepayment Options
Prepayment plans provide one of the most effective customer retention strategies in the sales game. If your customers are on monthly contracts, there’s no reason for them to stay with you longer than through the next billing period. Annual payment plans improve your MRR and your customer retention, and they have the potential to yield a higher net gain over time—even if you offer a discount.
Eliminate Free Plans
When customers see the word “free,” it catches their eye. But once you offer something at no cost to them, there’s very little incentive for your customers to pay anything at all. As we noted above, users consider paid products more valuable than free products. But there are other issues with offering your plans for free. In general, free users will stay free users, and your resources will be spent on customers who aren’t contributing to your growth. Eliminate free plans and instead focus on retaining paid customers by providing the support and products they value.
Working out your MRR according to its specific type allows you to track crucial data that helps you shape your sales, acquisition, and retention strategies. Knowing your MRR helps you determine if sales and marketing efforts are working. It also shows you specific strengths and opportunities to grow. Plus, knowing your MRR allows you to budget and make plans for your business moving forward. Determining your MRR is really quite simple, and the data you get from calculating your MRR enables you to make sound decisions that help your business grow.