As outlined in a previous post, MRR is the amount of recurring revenue you generate in a given period. MRR does not include any one-off charges your clients pay you.
For example, to calculate the MRR in a given month, you would tally up:
MRR at the beginning of the month+ New MRR from new customers+ New MRR from account expansions– Contraction MRR– Churn MRR= MRR at the end of the month
The easy answer to give when asked how to increase MRR is to respond with “increase sales”. However, after reverse-engineering the formula, there are a few ways to increase MRR:
- Increase sales
- Increase expansion revenue
- Reduce churn
- Make sure your clients are recognizing value in your product
What will the quantitative impact on MRR if you improve each of the above?
To answer that, let’s use a simple example data set. Let’s assume the following monthly data for September 30 2017:
2000 subscribers$98,000 MRR at the beginning of the month+ $5000 New MRR from new customers (100 new customers)+ $3000 New MRR from account expansions– $1000 Contraction MRR– $2500 Churn MRR (50 lost customers)= $102,500 MRR at the end of September 2017
1. Increase sales by 5%
If you focus on ramping up sales by just 5%, your MRR from new customers would increase to $5250.
This small improvement would bump your MRR to $102,750.
2. Increase expansion revenue by 20%
I outlined the importance and benefits of focusing on expansion revenue in this post. If you focus on upselling your existing client base, and increase expansion revenue by only 20%, your MRR from account expansions would jump to $3600.
This small improvement would increase your MRR to $103,100.
3. Reduce churn by 1%
By focusing on retention and product success, and manage to reduce your churn by 1%, this would reduce your MRR churn to $1500 (here are a few ways to reduce churn).
This improvement would increase your MRR to $103,500.
Now, let’s see what happens to MRR if we can combine all of these improvements together:
$98,000 MRR at the beginning of the month+ $5250 New MRR from new customers (100 new customers)+ $3600 New MRR from account expansions– $1000 Contraction MRR– $1500 Churn MRR (50 lost customers)= $104,350 MRR at the end of September 2017
The MRR would increase to $104,350 from $102,500, an increase of 1.8%. Although this seems insignificant on a monthly scale, it would drastically balloon your MRR if you compound these improvements over 12 months!
The bottom line is that no improvement is too small. Keep poking away and hack ways you can increase your MRR and profitability!Â
