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MRR/ARR: Calculating and Optimizing

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Your monthly or annual recurring revenue (MRR and ARR for short) is one of the primary reason we're all in SaaS. Recurring revenue means our growth can compound and through this momentum we can ensure we're always improving and building something beautiful.

Here we walk through exactly how to calculate Lifetime Value (MRR/ARR), including what to and not to include in the calculation, as well as how to optimize this crucial SaaS metric.

Published in: Software
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MRR/ARR: Calculating and Optimizing

  1. 1. MRR/ARR: Calculating and Optimizing Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR) Price Intelligently’s SaaS Metric Mondays
  2. 2. Let’s talk about MRR & ARR The truest look into the health of your SaaS company Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  3. 3. MRR = Monthly Recurring Revenue ARR = Annual Recurring Revenue (MRR x12) Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  4. 4. 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? Get your free ProfitWell account – 1-click SaaS Metrics >> Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  5. 5. Here’s How You Breakdown MRR Visually (via ProfitWell Dashboard) Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  6. 6. All that stuff is great but…why should you care? Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  7. 7. “Not tracking MRR/ARR is like winning the lottery and then setting the ticket on fire - #SaaSfoul” Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  8. 8. 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 FinanceProduct Continue to get better and optimize on areas experiencing high churn for maximum improvement See the breakdown of your MRR/ARR Churn with ProfitWell >> Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  9. 9. Lets dive deeper and calculate MRR/ARR like a #SaaS superstar Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  10. 10. 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 Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  11. 11. The calculation breakdown Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR) EQUATION True 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)
  12. 12. Once you master calculating MRR/ARR, Optimize It! Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  13. 13. 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 LTV 4. Reducing your CAC and other costs $ $ $ $ $ $ $ $ $ $ $ $ Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  14. 14. 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 Optimization Increase your net new customer acquisition Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  15. 15. 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 Optimization Increase your expansionary revenue through upgrades and value metrics Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  16. 16. 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 Optimization Increase your retention to boost your LTV Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  17. 17. 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 Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  18. 18. Boom. Now you can maximize the health of your SaaS business with your new mastery of MRR/ARR. Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)
  19. 19. Want real time SaaS Metrics? Know and understand your SaaS Metrics with ProfitWell for free – the most accurate metrics on the market Click here to get your free ProfitWell account >> Monthly Recurring Revenue (MRR) – Annual Recurring Revenue (ARR)

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