SaaS business owners should have clear visibility into their predictable monthly revenue sources. A Monthly Recurring Revenue (MRR) calculator helps SaaS entrepreneurs estimate critical metrics like month-on-month growth rate, monthly churn rate, and projected MRR for next month so that they can plan their upcoming lead pipelines accordingly.
What is MRR?
MRR is the total predictable revenue a SaaS business generates in a particular month. It combines all the active subscriptions for that month, including discounts, coupons, add-ons, and so on.
The purpose of calculating MRR is to track the business's financial health monthly and plan future earnings accordingly.
How to Calculate MRR?
Here’s how you can calculate MRR:
MRR =[ Number of active subscriptions in a month] X [Average revenue per user]
For example, if your business has 20 active subscriptions in a month for a $50 plan, the MRR will be
MRR = (20 X $50) = $1000.
Hence, if your revenue goal for the next month is = $1500, you will need at least [ ($1500 - $1000) / $50] = 10 new subscribers to opt for the $50 plan.
This is how sales managers can set their goals for the upcoming months based on the current month’s MRR and assign the sales reps their targets.
Why does MRR matter in Sales?
Here’s why MRR matters, especially for SaaS businesses:
1. Track your businesses’ financial performance
Measuring a subscription-based business's growth on a monthly basis is a practical approach.
In a subscription model, revenue from a customer comes in gradually every month, not in one lump sum like with single sales. Therefore, it is important to monitor the business's financial performance in a similar manner to ensure a consistent cash flow and build a sustainable business.
This is where MRR can help.
It keeps a record of the monthly trends and provides insights into the business's financial performance in the short term, allowing you to gauge how close you are to achieving your annual revenue target. Additionally, examining the past year's results can help set realistic goals for your sales team.
2. Project upcoming month’s sales revenue
By monitoring MRR, sales representatives can assess their individual performance, while sales managers can evaluate the overall performance of the team.
With MRR, they can create more precise sales predictions and estimates, which benefits the sales team in planning for growth in both the near future and the long term.
3. Seamless budgeting
MRR provides an estimate of the monthly revenue that will be generated by the business. By comparing this revenue to the company's expenses, you can clearly understand the resources available for reinvestment in the business.
This is how MRR helps you make informed decisions and effectively allocate budget for business growth. Additionally, MRR projections also assist in identifying areas where you need to increase expenses and cut costs.
3 Tips to Improve your SaaS Business’ MRR
Here are some tried and tested tips to improve your business’ MRR:
1. Make data-backed decisions
Search Engine Optimization (SEO) is something that SaaS businesses should never neglect. Most of the potential customers of SaaS businesses are searching for solutions, product recommendations, etc., across Google. With a good SEO-focused strategy, you can easily convert these users into customers and boost your MRR.
Some tips to help you get started are:
- Use tools like SEMrush to find your most-visited product pages. This will give you an idea of which products are getting the most attention from potential users. Accordingly, you can identify profitable keywords for these pages and improve their search engine rankings to reach a vast audience.
- Additionally, ensure that your product team is consistently improving the product. SEO efforts can improve traffic, but eventually, to increase the conversion, the potential users like your products.
- Once you find the list of profitable keywords, optimize About us, pricing, and other pages. These might not be direct product pages, but they have enough potential to convert your target users.
2. Make the most of content marketing to nurture your audience
Content marketing is more powerful than you think.
Did you know that the SaaS company Plausible.io grew from $400 MRR in April 2020 to $10000 MRR in 2021 with strategic content marketing?
An effective content marketing strategy addresses users in different phases of the sales funnel and tries to cover the potential customer's pain points. With customer-focused content marketing, you can educate, nurture and convert the leads to boost your MRR.
Some content marketing tips that can work wonders for SaaS businesses include:
- Your content marketing strategy should be consistent and simple. It should be developed based on your target buyers’ needs, interaction with potential customers, and evaluation of your competitor’s content strategy.
- The content you published a year ago or even six months ago should be revamped regularly. Else, even very well-written content will go stale and won’t matter much to the buyers. So, conduct content audits regularly and update the old content pieces as per convenience.
- Your content strategy should be a mix of everything. Don’t rely on any content assets among blogs, ebooks, data sheets, webinars, podcasts, etc. A mix of everything is the way to go.
- Prioritize content distribution too. You need to know where your audiences are most active, and accordingly, you can distribute your content on that platform. For example, B2B decision-makers are most active on LinkedIn. Therefore, you should have a dedicated strategy to distribute and repurpose your content on LinkedIn.
3. No more free plans
Free plans are a great way to build awareness and spread word-of-mouth in the initial days of your business. However, as your SaaS business starts scaling, you must reconsider this strategy.
To boost MRR, businesses should ditch their free plan and focus on converting more paying customers. This may mean that you’ll lose some customers, but it may also mean that some customers who are happy with products and don’t want to search for a new alternative will opt for the paid plan.
However, if you are too worried about pausing the free plan, make sure not to promote it a lot on your social media platforms. Instead, promote your premium plans and how they are worth investment. Also, customers opting for free plans start dropping prompts to upgrade to a premium plan to enjoy more benefits.
Use this Excel/Google Sheet template to calculate your monthly recurring revenue. Track your MRR with the MRR calculator over time, so you can make informed decisions about pricing, customer acquisition, and retention.
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