What Is Monthly Recurring Revenue?

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Do you know the reason why more than 80% of businesses fail? It’s because they don’t have cash flow.

That’s why you need to have a full understanding of your business finances. Without that, have no idea where your business stands.

You need to know what’s coming in and what’s going out at all times. For businesses that rely on memberships or subscriptions, you need to know your monthly recurring revenue.

Read on to learn what monthly recurring revenue is, how to calculate it, and how to grow your monthly revenue.

What is Monthly Recurring Revenue?

At the most basic level, your monthly recurring revenue is the amount of money coming in from memberships and subscriptions. It’s commonly known as MRR.

MRR is used for a variety of purposes. It can be used to measure cash flow. It is also widely used for measuring the momentum of company growth.

This is the average of your pricing tiers and billing periods into one number. This allows you to track your company’s growth and cash flow over time.

This metric is used by a wide variety of industries, from health clubs to software companies. These business models largely rely on MRR as the main source of income.

Calculating MRR

How do you calculate MRR? Take the number of customers you have and multiply that number by the average billed amount each month.

Calculating MRR seems really simple, but you have to factor in two very important things: gaining new customers and losing current customers (churn rate).

Once you add these two factors, calculating MRR suddenly becomes much more complicated. That’s no accident.

You can project your churn and new customer rates by taking the previous six months and creating an average of those numbers.

Once you know those factors, you can then use an MRR calculator to see your numbers over a set period of time. You can also adjust the calculator to see how a lower or higher churn rate would impact your numbers, too.

You can add another layer into MRR called expansion MRR. This is if you have additional products for up-sales and cross-sales.

How Do You Calculate Annual or Quarterly Subscriptions?

This is a common question for people calculating MRR. How these numbers are factored in depends on why you’re calculating MRR.

For example, if you’re using MRR to manage cash flow, then it makes sense to apply the revenue to your monthly subscription average.

However, if you’re using MRR to gauge company growth, you want to leave these numbers out and just focus on pure monthly revenue.

Increasing MRR

There are two primary ways to increase your MRR. One is to increase customer retention. The second is to get new customers. It costs much less to keep the customers you have rather than getting new customers.

You don’t want to focus all of your efforts on customer retention, though. You want to have a healthy balance of customer retention and new customers. That’s the winning formula that will help your business grow much faster.

How to Increase Customer Retention

Customer retention is a fact for businesses that rely on monthly revenue. A good percentage rate will depend on your industry. Most industries assume a retention rate anywhere between 95% – 90%. Other industries may be much lower.

You can increase your retention rate in a number of ways. The best way is to focus on the entire customer experience. That experience begins with the first awareness of your brand. The experience continues well after someone signs up for your services.

Many businesses stop once a person becomes a customer. That creates a churn and burn environment, which is unsustainable.

Look at each point of the customer experience. You can ask your customers what they want to see from your services. It’s a way to keep them engaged and feel valued.

Another way is to constantly provide value for customers. Customers see monthly subscriptions as an expense that they can easily cut back on. It may feel like you’re reselling your services, but it’s a reminder to your customers as to why your offerings are indispensable.

How to Get New Customers

There are countless ways to get new customers. That’s why there are books, blogs, and degree programs devoted to the topic.

At the heart of getting new customers is knowing who they are. I mean, really know who they are. It’s not enough to say that you want to work with everyone who needs your services in your area.

You have to go deep. What is it that they’re really looking for? You might sell accounting software on a monthly subscription, but that’s not the real reason why people are interested in your software.

They want peace of mind around their finances.

Likewise, a health club doesn’t just sell weight loss. They sell confidence and a new way of being to members.

You want to understand the demographics and the psychographics of your customers.

You also need to answer why they should use your solution instead of the competition.

Once you have those items down, you then need to figure out the marketing channels to reach them. You can use a variety of tactics like social media, SEO, or paid advertising.

Your job is to figure out where your audience hangs out online and promote your offerings there.

Measuring Monthly Recurring Revenue 

You need to know where your company stands at all times. Your employees depend on it, your customers and investors depend on it, too. That’s why you need to measure your monthly recurring revenue.

It will help you identify what’s working in your business and where you need to focus your marketing efforts. You may find that the business is generating new customers at a fast pace, but you’re losing them just as quickly.

That’s not a sustainable business model and you’ll need to focus on lowering that churn rate. Do you want more great tips to improve your business? Check out this site often for the latest articles.