Of the numerous metrics marketers use, MRR (Monthly Recurring Revenue) can be one of the most significant – especially from the point of view of SaaS (Software as a Service) providers.
Unfortunately, it can be as confusing as it is significant. Understanding what MRR means is the key to unlocking the huge potential that the metric has to transform the success of a SaaS firm’s marketing efforts.
In SaaS terms, Monthly Recurring Revenue (MRR) means the value accrued from subscribing customers. In addition to the actual monthly revenue collected from customers, MRR is also a blanket term for other aspects of SaaS, such as the value lost when customers unsubscribe.
To understand MRR, it’s essential to note that SaaS companies mainly offer subscription-based services. This article will explain MRR in detail and show how you can use it to improve marketing success.
MRR is made up of multiple metrics
A common misconception, especially since the term MRR is recent, is that it’s just one metric – the actual monthly revenue from customers.
While it’s true that MRR conveys the value of monthly subscriptions, the metric actually covers a lot more, including:
- Revenue as a result of reactivation of unsubscribed customers
- Revenue as a result of business from new clients
- Revenue as a result of subscription upgrades. Eg. from the Bronze to Gold Package
- Revenue lost as a result of subscription cancellations
All the above facets of MRR as a metric help give a holistic view of a SaaS firm’s performance, making it easier to optimize marketing efforts.
After all, metrics exist to help organizations improve.
The value of MRR as a metric
At the macro level, comparing the MRR of different periods in a financial year can help the organization identify and emphasize beneficial practices.
For example, you might note that, during a certain quarter, you have more customers reactivating their subscriptions.
An investigation of this upward trend might reveal that you were more active on social media or in your email campaigns, which attracted clients who had previously unsubscribed.
With the above observation, you’d be empowered to double down on the marketing efforts that have proven to have a higher ROI in terms of improving MRR.
You can use MRR at the individual level. Using historical data and ideal customer profiles, you can determine the clients who are more likely to have a higher MRR. You can then label such clients as “high-value” and dedicate more resources to acquiring or retaining them.
With the above criteria, high-value clients would include those who are likely to subscribe to higher tiers and have a higher lifetime value to the company.
This sort of optimization also helps you cap the resources you can spend on clients with a low lifetime value as shown by their individual estimated MRR.
MRR vs. ARR
Some may not know the distinct differences between MRR and ARR. You can learn more about this by visiting this guide about MRR vs. ARR.
How does SaaS Insights calculate MRR?
SaaS Insights calculates MRR by totalling up your subscription amounts at the moment of syncing. Here you can learn more about how SaaS Insights calculates MRR.
Conclusion
MRR is a value that represents the recurring revenue that a company receives from subscriptions. Rather than being a single metric, it’s a blanket term used to refer to a number of metrics related to subscriptions.
MRR can be useful for optimizing marketing efforts.