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What’s this and how does it benefit your business?
Monthly Recurring Revenue (MRR) is the bread and butter of every SaaS business. In simple words, it’s the amount of money you can expect in a month based on the recurring subscriptions you sold.
Let’s assume that you sell a $30 monthly subscription. In May, you sold 1000 subscriptions. So, your MRR for June is $3000. Of course, this is an approximate value because it doesn’t calculate people who cancel your subscription or downgrade to a cheaper plan, if you offer one.
It could be that 5 customers purchased your subscription in the first week of May, then canceled it before the end of the month, maybe to avoid being billed again in June. Your MRR for June is still $3000, but we know that it’s not the exact amount you earned.
Still, MRR is important because it’s the easiest and most reliable way to forecast your earnings in the future months. It lets you know with reasonable accuracy if in the coming months you’ll be able to afford a certain expense. For example, an increased advertising budget.
Also, it allows you to assess your business’ health quickly. If your MRR is growing month by month, it’s reasonable to assume that you’re gaining a healthy amount of new customers. The old ones are probably happy enough to stay loyal to your brand or even upgrade to pricier plans. If you notice a MRR decline, you’ll likely need to worry about your customers churning or downgrading to cheaper plans.
The sooner you know that your MRR is declining, the sooner you can take action to minimize the damage. This ultimately means fewer money losses for your business. You’ll have to dig deeper and find the reasons why your customers churn: bad customer service, lack of a key feature, pricing… It can be something as simple as the customer’s payment method not working!
After you’ve identified the reasons, you can take steps to decrease money losses. If the problem is pricing, you can send the lost customer a follow-up email, offering them a discount if they come back. If the problem is a missing feature, you can consider implementing it in a future product update. And so on! We could come up with endless examples but the same logic applies.
This template also lets you measure your real MRR in a given week versus the weekly goal you had set. You’ll see the goal completion in an easy-to-understand percentage value. If your goals aren’t met, you’ll know immediately, so you can take action fast and solve any problem that’s holding you back.