MRR (monthly recurring revenue) is a predictable profit a subscription company can obtain every month. It helps a brand forecast its monthly profit margin, assess its business health, 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 your MRR and increase it.
Why is MRR important?
Companies that offer subscriptions use this metric to evaluate their revenue every month. These businesses always have new users who sign up and regular clients who churn out. By calculating the indicator, entrepreneurs can assess the changes in their constant monthly revenue. As a result, a company’s team can have a clear picture of the current situation, including their constant profit increases or decreases. Monthly recurring revenue shows a brand’s current condition so that its teams can forecast their future revenue and make wise decisions about the budget and investments.
Calculating MRR is critical for business owners since it provides them with an understanding of the potential income from every customer each month. The model allows a company to obtain more information on future cash flows and budgets. This way, business owners are aware of their companies’ condition, can track the revenue they receive, and forecast the profit a company can attain when it prospers.
Now that you know about the importance of this metric, let’s find out the difference between MRR and ARR.
MRR vs. ARR
Both measures are essential for tracking performance, estimating profits, and receiving updates on a company’s health. However, 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 determine how much all their customers pay monthly for subscriptions, annual recurring revenue indicates the sum of money a business receives annually.
If you want to see the monthly results of your business, you should calculate MRR. However, when you want to find out about your company’s performance during the year, consider calculating your ARR.
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 spend $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
We have prepared several strategies to help you improve your MRR.
- Present additional features. There’s no need to combine all your benefits in one package. Your clients probably won’t use all the features their plan offers at once. Enable your customers to add some of 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. Apart from that, send customer surveys to find out what additional features your audience would like to have. Afterward, add them to your plan for a higher price.
- Expand customer acquisition channels. You need to find the most appropriate platforms to bring in new consumers. You can generate new clients 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 a few platforms that have the most significant 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 one 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. 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 boost 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 and have some tips to estimate and improve the metric. Consider the techniques above to improve your monthly recurring revenue.
Last Updated: 22.03.2023
or