MRR/ARR: Calculating and Optimizing

MRR/ARR: Calculating and Optimizing

Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)

Price Intelligently’s SaaS Metric Mondays

Let’s talk about MRR & ARRThe truest look into the health of your SaaS

company


MRR = Monthly Recurring

RevenueARR =

Annual Recurring Revenue(MRR x12)


MRR/ARR =The normalized monthly/annual revenue from all of

the recurring items in subscription service. This metric is the truest form of visualizing the money

coming into your business

Want To See What Your MRR/ARR Is Right Now?

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Here’s How You Breakdown MRR Visually(via ProfitWell Dashboard)


http://home.profitwell.com/

All that stuff is great but…why should you care?


“Not tracking MRR/ARR is like winning the lottery and then

setting the ticket on fire - #SaaSfoul”


https://twitter.com/intent/tweet?text=%22Not+tracking+MRR/ARR+is+like+winning+the+lottery+and+then+setting+the+ticket+on+fire+-+%23SaaSfoul%22+@priceintel+http://goo.gl/KpfI1O&source=clicktotweet&related=clicktotweet

More specifically…

Understanding your MRR/ARR can help:

Make consistent and predictable financial forecasts that provide a realistic view of where your SaaS

company stands

FinanceProductContinue to get better and optimize on

areas experiencing high churn for maximum improvement

See the breakdown of your MRR/ARR Churn with ProfitWell >>





Lets dive deeper and calculate MRR/ARR like

a #SaaS superstar


What’s included in the MRR/ARR calculation?

With MRR/ARR it is simple: (Recurring + Upgrades) – (Downgrades + MRR

Churn)

MRR/ARR Criteria Breakdown Include Exclude

All recurring items Set up fees

Account upgrades Credit adjustments

Account downgrades Non-recurring add-ons

MRR Churn One-time charges


The calculation breakdown


EQUATIONTrue MRR can be found by the following equation

breakdown. ARR uses the same equation multiplied by 12.

MRR at the beginning of the month

MRR gained from new customers for the month

MRR change gained from upgrading customers for the month

MRR change lost from downgrading customers for the month

MRR Churn from the month(ARR = MRR X 12)

Once you master calculating MRR/ARR,

Optimize It!


Create more recurring revenue for your SaaS business by:

1. Increasing your net customer acquisition 2. Increasing expansionary revenue through upgrades and value metric

3. Increasing your retention to boost your LTV4. Reducing your CAC and other costs


New customers in the door means more money for your business. Optimize your LTV/CAC ratio to a point

where your customer acquisition cost is low and acquisition strategy efficient

Key OptimizationIncrease your net new customer

acquisition


There’s a lot of money to be grabbed off the table from current customers. Give them incentive to

upgrade within your product by aligning the product with your value metric.

Key OptimizationIncrease your expansionary revenue through upgrades and value metrics


Align your product with a value metric and customer personas.

This will naturally generate more MRR/ARR by expanding the width of retained customers and lengthening customer life

span or Lifetime Value.

Key OptimizationIncrease your retention to boost your LTV


If all else fails, trim the fat of your business to cut down on costs.

This will push more money toward your revenue pile and lower the strain of money your business is throwing

at expenses

Key Optimization Reduce your costs

COST


Boom. Now you can maximize the

health of your SaaS business with your new mastery of

MRR/ARR.


Want real time SaaS Metrics?

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most accurate metrics on the market

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Software

MRR/ARR: Calculating and Optimizing