By Vibhav Singh, co-founder and CEO at xtenav.com. He helps people create amazing audiovisual designs and winning sales proposals.
I understand the obstacles that software as a service (SaaS) businesses encounter when striving for rapid growth, particularly when it comes to monthly recurring revenue (MRR). MRR serves as a metric that indicates the direction of a company’s revenue streams and its well-being. At a basic level, MRR represents the revenue generated from subscriptions. It excludes one-time charges, ensuring a reflection of the company’s recurring income.
At my company, we have implemented strategies to achieve MRR growth, and I believe they truly set us apart from the competition.
Tips For Improving Your Monthly Recurring Revenue
Achieving growth in MRR is an essential strategic objective. We have refined various strategies through our experiences and have found the following tips helpful—they even allowed us to double our MRR within a relatively short span of six months.
1. Prioritize Quality
In the changing world of SaaS, quality is increasingly important. Make it a priority to deliver a product that seamlessly meets your customer’s needs. When customers are satisfied they are more likely to stick, ultimately leading to increased MRR.
2. Examine Several SaaS Pricing Options
Customize your pricing plans to cater to customer segments. Provide packages with different features so that your offerings perfectly align with the specific requirements of customers.
3. Avoid The ‘Unlimited’ Pricing Package
While the idea of unlimited may seem attractive, we’ve found that it can actually hinder revenue growth. Instead, I recommend opting for pricing models that encourage scalability and allow clients to pay for what they utilize.
4. Keep The Amazing Features As Add-ons
By offering features as add-ons you give customers the freedom to customize their experience, which could potentially increase your MRR as they choose to include more functionalities.
5. Avoid Extending Discounts Too Frequently
While providing discounts may be effective, in the long term it can diminish the perceived value of your product. Instead, focus on showcasing the worth of your product.
6. Be Strategic With Free Trials
Consider providing a limited trial that allows users ample opportunity to fully grasp the value that your software brings. For example, to ensure that the clients have time to fully explore the capabilities of our audiovisual software, we offer a generous 15-day trial period with the option to extend for those who require additional time to delve into the platform. We’ve seen how this strategic approach can boost conversion rates.
7. Do Events-Based Billing
Events-based billing is a payment model that considers the specific actions or actual usage of consumers to determine practical pricing. It offers a cost-effective approach, especially for customers whose usage patterns may vary over time.
8. Automate Customer Acquisition And Retention
Utilize automation to streamline customer onboarding and retention processes. A seamless experience not only pleases customers but can also reduce churn, which positively impacts MRR.
9. Examine Your Churn Rate
Analyze patterns of customer attrition to identify areas for improvement. Addressing pain points promptly can result in better customer retention.
10. Overdeliver On Your Customer Experience
By now, it’s probably clear that exceptional customer service and support can make a difference. By going above and beyond, you can not only retain existing customers but also foster loyalty and advocacy that helps bring in new customers.
11. Upsell At The Right Opportunity
Identify moments when customers could benefit from features or services and offer genuine, timely suggestions.
By implementing these techniques you not only focus on immediate results but also lay a strong foundation for continuous growth. Keep in mind it’s not about the figures; it’s about providing solutions that deeply resonate with your customers, thus ensuring their long-term satisfaction and success with your product or service.
How To Calculate MRR Growth
Now that we’ve considered ways to improve MRR, it’s important to talk about how to track and measure that growth. To calculate your MRR, you multiply the total number of active, paying customers by the average revenue per user (ARPU) per month. This formula provides the sum of the revenue contributed by each customer, thus providing a snapshot of the company’s recurring income.
To calculate the MRR growth rate, you take the MRR at the end of a period and subtract the MRR at the beginning of a period divided. Then, divide by the MRR at the beginning of a period and multiply this by 100. That will give you a percentage, a.k.a. your growth rate.
Those are the basics, but there are several things you can do to ensure accuracy and usefulness:
1. Be Dutiful About Data Collection
To accurately calculate MRR growth, gather figures at both the beginning and end of the analyzed period. These figures should include all subscriptions within that time frame.
2. Factor In Expansion And Contraction
Additionally, take into account any upsells, cross-sells or downsells that took place during the period. These adjustments will contribute to an understanding of your revenue dynamics.
3. Assess Your Churn Rate
Don’t forget to factor in customer churn by including lost revenue from cancellations.
4. Turn To Cohort Analysis For Deeper Insights
To gain insights into customer behavior and tailor growth strategies accordingly, it is beneficial to break down MRR by customer cohorts and analyze trends and patterns.
5. Monitor Customer Acquisition Costs
Lastly, closely monitor expenses related to acquiring customers as part of your evaluation process. Ideally, a healthy increase in recurring revenue would exceed customer acquisition costs, ensuring long-term profitability.
In conclusion, implementing these strategies has allowed us to embrace innovation, prioritize our customers and forge a path of growth. And I am confident that they can work for other SaaS businesses, too. Together, let’s shape the future of SaaS.