Monthly Recurring Revenue: How to Calculate and Improve MRR

Whether you are a founder of a startup or in sales with a business, metrics matter. Founders and startups are having to get customers and sales in the door sooner. Investors are shying away from start-ups that are pre-revenue. Whether you want to raise funds from investors or not, your business wants (and needs) monthly recurring revenue.

Monthly recurring revenue is the most important metric for a subscription-based business. With technology today, businesses are growing subscription-based businesses.

A subscription business includes software services, boxes, and coaching business to name a few ideas. A subscription business helps decrease the risk for a business with monthly recurring revenue streams.

If you haven’t considered monthly recurring revenue yet for your business, you want to start. Monthly recurring revenue is now part of almost every industry from groceries to consulting. Many businesses and entrepreneurs operate with seasonality or feast or famine. Aren’t you ready to stop doing that?

Did you know that acquiring new customers costs 5 to 10x more than retaining existing ones? You may want to know that returning customers spend over 67% more than new customers? Once you set up and market your business, monthly recurring revenue pays in every way.

That’s a lot of business you could be missing if people are looking for monthly recurring revenue services in your industry. Before you set up your recurring system, it’s important to have an in-depth understanding of monthly recurring revenue.

You may be great with what you do with your business, but you may want help. Want to get an in-depth understanding of monthly recurring revenue? From strategies to calculations, we discuss everything of importance here.

Guide on Monthly Recurring Revenue

We’re sharing the best strategies and calculations for monthly recurring revenue.

You love what you do with your business, but you are tired of worrying about one-off sales. Monthly recurring revenue will help give you peace of mind. Having money will help you scale easier.

Once you get a new customer you got monthly recurring revenue. This means you don’t worry about instability in sales monthly. It is important to track retention and churn to make sure your growth rate is stable or growing.

The general concept is that MRR is a measure of recurring revenue of your subscription business. It’s what you are earning or expect to earn monthly.

Monthly recurring revenue helps your business increase loyalty. It allows your business stability and more marketing opportunities to your existing base.Whether you’ve started your monthly recurring service or not, these strategies will help you.

Let More People Know About You

It doesn’t matter how great you or your services are if no one knows about you. Monthly recurring revenue is connected to your customers which are connected to your leads.

If you don’t have enough customers, start with how many leads you get weekly and monthly. Consider both softer and more direct approaches to increase how many people you reach.

Do you have key performance indicators you are tracking weekly like outreach, demos, and placements? These strategies may help you directly reach those that are you looking for your services and lead to results faster.

Content marketing is a softer approach with social media and influencer marketing strategies. On any strategy, you use, make sure you track your leading indicators and your return on investment over time.

Increase Excitement and Conversions

Letting more people know about you is the first step to increase monthly recurring revenue. The next step includes increasing excitement online and results. Think of ways you may drive conversion sooner with promotions, experiences, and activations.

It is important to connect with people and see what works over time. Even small changes to your conversion rates will have a dramatic impact on monthly recurring revenue.

A/B testing helps your business split-test different sales copy, button placement, and messaging. It may be the easiest way to boost monthly recurring revenue.

Rewards for Advance Payments

Monthly recurring revenue is great. Some businesses are implementing annual pre-payment plans to boost cash infusions. Prepayments infuse your business with cash and increase retention by getting customers to commit to 12 months.

Offering a promotion to customers for committing to an annual plan helps persuade people. Even with a discount, the retention still yields a positive monthly recurring revenue.

Focus on Enterprise Businesses

Diverse strategies in your industry are important. Many businesses that offer monthly recurring revenue include strategies direct to consumers, small business and enterprise.

It’s important to point out to reach a $10,000 monthly base with consumers requires 1,000 people to commit. In comparison, one contract with a small business and/or enterprise may accomplish the $10,000 base.

As a result, mixing up your marketing strategy helps. Consider focusing 80% of your activities on B2B with content marketing and direct outreach. Include the same monthly online programs to their teams along with in-person live offerings or add-ons.

This will help you get to your minimum revenue required to sustain and scale the business faster. Use the revenue from B2B to invest in consumer strategies like ads, social media, and influencer marketing. Basically, spending 20% of your team’s time or less on consumers.

Make sure you evaluate your pricing for enterprise business. It’s important you offer advantages to businesses for retainers with a focus on profitability. Big businesses will pay more for your solutions by getting more value from it and having bigger budgets to invest.

Monthly Recurring Calculation

There are several ways to calculate monthly recurring revenue. We are sharing some to help you get started easily.

MRR Customer by Customer

To calculate MRR using the customer-by-customer method, combine the monthly payments of all customers. If you had 100 customers that paid you $100 each month, the MRR would be $10,000

Average Revenue by Account

If you’re using the average revenue per account method (ARPA), you’ll take the average of how much all of your customers are paying and divide that amount by the total number of customers.

MRR = ARPA * Total # of Customers

So, if you have 100 customers paying an average of $97 per month, your MRR would be $9,700

New MRR

New MRR is the monthly recurring revenue that’s generated from brand new customers. Let’s say you have 10 new customers in a month, half of them pay $100/month and the other half pays $297/month — new MRR would be $1,985.

Expansion MRR

This number represents additional monthly recurring revenue from your existing customers. Expansion MRR are upgrades or upsells.

Using the example above, if five customers upgrade their contracts from $100 to $297/month — expansion MRR would be $985.

Churn MRR

Churn MRR is the revenue that’s lost due to customers canceling or downgrading. So if one customer cancels their $97 subscription, the churn MRR would be $97. This impacts your future monthly recurring revenue as well.

FREE EBOOK20 ways to reduce churn and retain more customersOur billing experts have produced this exclusive guide for you to help you reduce your intentional churn and retain more customers – key to the growth of your subscription business. Inside, you’ll find insider tips, statistics and information that you need to help grow your subscription business.

We’ll also show you how features within Billsby can help you implement these techniques quickly and easily, so that you can grow your business and get a head start on your competitors.