What is monthly recurring revenue, or MRR, in your startup, and what steps can you take to grow it? Join us in our final article about metrics as we look at how you can increase your monthly recurring revenue.
When you are responsible for a startup, it’s important to know how much money you’re making on a regular basis. After all, you need that money to pay your staff and suppliers, sustain your MVP, and keep your investors happy!
With this in mind, monthly recurring revenue (or MRR) is an essential metric to monitor. And the good news is, it’s really simple to calculate.
In this article, we’re going to take a look at monthly recurring revenue in startups and how to increase monthly recurring revenue if your figures are starting to look a little low.
Don’t forget, if you want to create a high-quality SaaS product, marketplace, or mobile app that is guaranteed to keep your MRR nice and high, we’re here to help.
- What is the monthly recurring revenue in your startup?
- What does monthly recurring revenue say about your startup and/or MVP?
- How do you calculate your startup’s monthly recurring revenue?
- What’s a good startup’s monthly recurring revenue?
- How to increase MRR in your business
- Introduce different pricing plans
- Upsell and cross-sell (and unbundle!)
- Increase prices (or encourage customers to lock in for a year)
- Listen to your customers
- In summary: increasing monthly recurring revenue in your startup doesn’t have to be a chore
What is the monthly recurring revenue in your startup?
Monthly recurring revenue is the total amount of revenue generated by your business over the space of the month. It can be measured in euros, dollars, pounds… whatever currency you operate in!
MRR is a good metric to measure for SaaS businesses, as subscriptions typically are taken on a monthly basis. This can help you see if you have a steady cash flow in place or not.
What does monthly recurring revenue say about your startup and/or MVP?
A high monthly recurring revenue shows that you’re growing your customer base, whether that’s by finding new customers or upselling to existing ones.
A healthy MRR also shows you’re on your way to finding product-market fit. This is when you’ve found the right market for your product or service and are in a position to start scaling.
How do you calculate your startup’s monthly recurring revenue?
Calculating MRR in your startup is very simple. All you need is the average monthly revenue per customer and the total number of customers. Then, it’s just a case of multiplying the two numbers together.
So if the average monthly revenue per user is $100 and you have 1,000 customers, your MRR is $100,000.
Some companies split MRR up into different elements so they can identify specific customer insights and see which parts of the business are generating the most recurring income. For example, some startups measure monthly recurring revenue generated from new customers separately, so they can see how they are doing at acquiring new customers.
Others calculate MRR that comes from add-ons and upgraded subscriptions so they can see if their ‘unbundling’ efforts are paying off. We’ll look at unbundling and how you can use it as a strategy to increase your monthly recurring revenue later on in this article.
What’s a good startup’s monthly recurring revenue?
Our answer to this question in previous articles is that it’s hard to say, as all businesses have different products, services, and goals that need to be taken into consideration. You’ll be pleased to know our answer remains the same here!
MRR expresses a monetary value rather than a percentage value. This makes it hard to benchmark against other companies as you’re comparing apples and oranges.
If you do want to compare and contrast, some analysts recommend measuring your MRR growth rate, as this is measured as a percentage. You can calculate the MRR growth rate in the following way:
(Total MRR at the end of the month – total MRR at the start of the month) divided by total MRR at the start of the month x 100.
So if your MRR at the start of the month was $85,000 and your MRR at the end of the same month is $100,000, your growth rate would be 17.6%.
An MRR growth rate that is over 10% is a good sign and shows that your startup is making good progress. Over 20% and your business is performing exceptionally well!
MRR growth rate makes it easy to forecast the future growth, which can be helpful when it comes to determining your approach to sales and marketing. It can also be a valuable metric to take to investors when it comes to getting investment and funding.
How to increase MRR in your business
A dip in monthly recurring revenue generally means one of two things for your startup. Either you’re losing existing customers (customer churn), or they’re downgrading their subscriptions.
If your MRR or MRR growth rate looks low, there are steps you can take to increase it. Here are some of our recommendations.
1. Introduce different pricing plans
To keep your MRR as healthy as possible, you want customers to stick around for as long as they can. One of the easiest ways to do this is to implement different pricing plans.
Many SaaS companies don’t have just one pricing tier; they have at least three. For example, take Intuit Quickbooks. The accounting services provider has four-tiered services for businesses, as well as a more affordable pricing plan for self-employed users.
This gives customers lots of opportunities to pick the pricing plan best suited for them, and they can upgrade or downgrade as appropriate.
2. Upsell and cross-sell (and unbundle!)
MRR is all about ensuring you get as much monthly revenue as possible. One of the ways you can increase your stats is by offering plenty of upselling and cross-selling opportunities to existing customers.
Cross-selling is when you sell related products or services to your customers, while upselling is when you sell upgraded products or services to your customers. Both are equally valuable to your business.
According to Invesp, existing customers are willing to pay almost a third more for services than new customers. That’s a lot of untapped revenue you can unlock by taking advantage of cross-selling and upselling!
Think about how you can provide additional value for customers through extra (as well as improved) services. For example, you could charge for training, a personalized onboarding experience, or even additional features. Some SaaS companies do this by ‘unbundling’ features originally sold as part of pricing tiers and offering them as stand-alone services instead.
Take live chat provider Tidio, for example. Customers can buy the standard live chat package and purchase an add-on if they want to take advantage of chatbot technology. That way, people aren’t paying for services they’re not likely to use, making them more likely to stay.
And of course, you can encourage customers on lower pricing tiers to upgrade to higher-priced tiers with upselling. Spotify does this really well by alerting freemium customers when they try and do something not in their pricing plan, like skipping too many tracks.
According to Salesforce, 37% of salespeople and marketers find upselling challenging. However, think of ways you can upsell to customers, and you’ll discover MRR increases in your startup as a result.
3. Increase prices (or encourage customers to lock in for a year)
One of the easiest ways to increase MRR in your startup is to increase prices; however, this is not a decision to be taken lightly. Do it at the wrong time or raise prices by too much, and you’ll see customers walk away.
Cobloom wrote a fascinating article about SaaS companies not spending enough time on their pricing strategies (the average time is six hours) and how they can get away with doubling their costs. Their logic is that low-value customers won’t justify a rise in prices, but high-value customers, the ones you want to stick around, will.
The average revenue per user (ARPU) is one of the metrics you use to calculate MRR and is an excellent way to see how much customers are willing to spend on your product. For example, if your ARPU is $25, it means the majority of your customers are happy to spend at least that with your business.
If you do decide to increase prices across your startup, do it right. Communicate the pricing changes clearly and ahead of time and explain how you will continue to add value to customers’ lives.
If you don’t have a variety of pricing tiers in place, it’s a good time to implement them. It’s typically better for a customer to downgrade to a lower-priced tier than to downgrade to freemium or, even worse, jump ship to a competitor.
If increasing prices isn’t an option, an alternative might be to encourage customers to commit to a year-long contract. Rather than a monthly rolling contract, offer small discounts to sign up for a whole year in advance. This increases customer retention and can give your MRR a boost.
(Just remember to include yearly contracts in your MRR by dividing them by 12 to ensure your monthly retention rate has no massive peaks or troughs!)
4. Listen to your customers
One of the best things you can do when it comes to increasing MRR? Talk to your most valuable customers and see what they want from your product or service.
When you offer what your target audience wants to see, they’re more likely to buy it, and your monthly recurring revenue will grow. Here’s an article by Mention that may be of interest. By understanding how customers used its service, the social media listening company boosted increased revenue per account by an incredible 296%.
For example, it’s essential to understand why your customers opt to downgrade to a lower-priced plan. By talking to them, either by email or over the phone, you can understand their reasons for doing so. Was it down to pricing? A feature that you used to offer but no longer do? You can then make changes that help reduce the number of downgrades you experience.
In summary: increasing monthly recurring revenue in your startup doesn’t have to be a chore
We hope this article has given you some valuable insight into your startup’s MRR and how to increase monthly recurring revenue to help grow your business.
As it’s a simple metric to measure and monitor, it makes sense for your startup to keep track of it. You then have a handy way of seeing a product-market fit and if you’re in the right place to begin scaling your operations up.
This is our final article looking at the different types of metrics you can use to monitor success in your startup. We hope you’ve found the past couple of weeks helpful and have taken away some valuable feedback when it comes to assessing how your business is doing. Now, you know how to increase monthly recurring revenue in your startup, and we are sure you you would like to review some more stuff:
Check out our previous articles in the series:
You are launched: Your number-one service provider in Ukraine
We were recently honored to be announced as the number one Ukrainian B2B leader by Clutch!
What does this mean for your startup? It means that when you work with You are launched, you get a hard-working, talented team dedicated to ensuring your startup launches successfully, wherever you are in the world.
We’ve already launched over thirty startups over the past four years and are well on our way to establishing even more! Will your startup idea be next on our list?
Why not give us a try and see what we can do for you? Contact us today to find out more.