Are you scaling your business’s Monthly Recurring Revenue (MRR)? All it takes is the right technology—plus an understanding of MRR implementation best practices. This article will offer MRR insights for SaaS and subscription companies. From results to overhead, consider it your all-in-one resource for Monthly Recurring Revenue.
MonthlyRecurring Revenue is the driving force behind thousands of successful subscription and SaaS companies. Essentially,MRR is a business’s revenue normalized in a monthly dollar amount. Specifically, it’s the total revenue generated from active subscriptions in a given month. The metric allows you to determine the average of your company’s pricing plans and billing periods. It transforms these variables into a consistent number that you can track over time. Keeping tabs on your business’s Monthly Recurring Revenue will provide a clear picture of your performance—giving you the tools you need to forecast future growth, estimate profit, and scale.
Subscription-based and SaaS companies calculate MRR as follows:
MRR = Number of Customers* Average Billed Amount
This means that if 10 customers pay an average of $250 per month, your business would have an MRR of $2,500.
10 * $250 = $2,500 MRR
Say you offer two different billing plans. 20 customers are on the $200 per month plan, and 10 are on the $300 per month plan.
Your MRR would then be: (20 * $200) + (10 * $300)= $7,000 MRR
CalculatingMRR lets you track your monthly revenue from specific subscription plans and services.
As your business grows, you’ll need to calculate both your top-level MRR and the factors at play in any changes from previous months.
Say you’ve added $2,500 in new MRR from the past month. To determine where the increase came from, you can hone in on the three elements that make up Net New MRR. These include:
· New MRR
New MRR is any additional MRR from new customers.
· Expansion MRR
ExpansionMRR is any additional MRR from existing customers.
· Churn MRR
ChurnMRR represents any MRR lost from customer cancellations or subscription downgrades.
With this in mind, here is the formula for calculating Net New MRR:
Net New MRR = New MRR +Expansion MRR – Churn MRR
If you churned more MRR than you earned from New or Expansion MRR, then your business lost MRR that month. To prevent this, you might consider raising your prices, upselling your services, or even eliminating any free subscription plans. Many features built directly into Rebilify can help you better understand your MRR in relation to your overhead.
MRR may look straightforward. It is, to an extent.
It’s also complex. By calculating your Net New MRR each month, you can determine whether your subscription or SaaS business is growing—and by how much (or how little).
Yet MRR focuses on revenue rather than profit. Naturally, businesses with lower overhead can grow their MRR more slowly and still profit.
But what’s a “good” MRR rate?
Most experts say a good Net New MRR growth rate is roughly 10% to 20% each month.
A Net New MRR rate of less than 10% can indicate problems like customer churn. You’ll want to conduct a detailed analysis and identify your growth issues if you find yourself here. Mature companies might be okay in this space because they have less overhead.
A Net New MRR rate of 10% to 15% is perfectly solid when it comes to revenue expansion. While it might not be enough of a benchmark for young companies (which often have a ton of overhead), this range is adequate for established SaaS and subscription businesses.
A Net New MRR rate of 16% to 20% is considered an excellent growth rate. Most companies sit here for a short time before their MRR starts to normalize. A Net New MRR of more than 20% is truly above and beyond—though it might be ideal if you have lots of overhead.
It’s important for SaaS and subscription businesses to calculate their MRR on a monthly basis. This will give you a clear picture of your performance with new and existing customers—helping you plan for future growth and make adjustments as needed. Interested in taking a closer look at your subscription revenue? Rebilify works closely with companies that want to bill, manage, and analyze their customer data.
Our platform truly makes scaling your Monthly Recurring Revenue a breeze. Book a discovery call with our team today, and learn how you can grow your business with MRR.
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