As a subscription business, you need to determine the growth rate of your Monthly Recurring Revenue (MRR) for a number of reasons. It not only offers a quick snapshot of your company’s health and viability, but it also allows you to play fortune-teller with the help of strategic numbers calculation to predict what level of cash flow you can expect, as well as the level you need to be at in order to be sustainable. But what is Month over Month (MoM) MMR growth? What does it look like? What are some benchmarks and goals? And, also, what challenges can you expect to encounter when you look at your MMR growth?
MoM MRR Growth Is a metric that’s used not only as an indicator of momentum and traction in the market, but also offers insights that are critical for determinations of how fast you’re growing. The formula is simple. It’s just a matter of calculating your Net MRR for last month and this month, then subtracting last month’s Net MRR from the MRR from this month. Then, divide that number by the Net MRR from last month to determine the percentage of MRR growth.
The calculation for MoM MRR is fairly straight forward, but you must be sure to include the churn, that MRR that was lost because of renewal attrition and subscription cancelations in that month. Since you’re measuring recurring revenue as well as growth via new subscriptions and upsells, but you’re also taking into account churn, you’re able to gather a better and more accurate picture of what the actual growth factor has been and will be.
Net MRR (This Month) = $650,000 + 100,000 (new subscriptions) + 100,000 (upsells) – 50,000 (churn) = $800,000
Net MRR (Last Month) = $650,000
MoM MRR Growth % = $800,000 – $650,000 / $650,000 = 23%
There are several important considerations to look at here. First of all, there has been continued growth over the period we’re looking at, but it’s also important to look at the churn. As a subscription company, you must continue to grow via those marketing efforts to bring on new subscriptions, but a substantial part of your sustainability and continued success also relies on those upsells. Your MMR growth can and will be quickly undermined if you don’t carefully consider and work to address that churn rate.
Your growth benchmarks are typically going to be specific to your subscription company. The desired growth may be determined by you, a group of investors, or maybe you’re looking at trends, and just looking to maintain consistency with those numbers. There’s probably no right or wrong way to set your benchmarks, but a “reasonable” target for growth, as recommended by some venture capitalists, is in the 15-20% range. That puts you in the double-digits, and gives you a starting point or jumping off point that’s not completely out of the realm of possibility and achievement. Even starting in the 10% growth range is a great benchmark for your team. Remember, though, that your benchmark is just that. It’s a goal. As you continue to focus on your lead generation, conversion, and retention efforts, don’t limit yourself. Look at how your team can reach the next-tier benchmark, with even better MoM MRR growth.
With your goals in mind, you also must be careful to avoid creative interpretation of the numbers. Your investors are looking for ways to strategically approach an overall outlook of the company’s success. On the one hand, you want to be real about the numbers, and talk about the growth in terms of dollars until your percentage does start getting into the double-digits benchmarking range. Also, some companies begin to branch out and expand their recurring income discussion with Annual Recurring Revenue (ARR) down the road, but you’re not there yet. So, don’t jump the gun.
Even if you’re just starting out, you should still start looking at your processes and procedures. If you start out by figuring out what works, and documenting successful sales strategies, you’ll be perfectly positioned to build upon what’s working, and rely upon those processes that have been tested and been proven to work well for SaaS company.
While it’s easy to determine whether there has been growth in MRR, it’s not always easy to pinpoint the factors that are affecting your growth, stagnation or loss. With just 30 days to work with and so many mitigating considerations, it’s just not easy to determine whether a downturn was based on something you did, didn’t do, or if it was a market-related anomaly that’s completely outside of your control. You won’t always have all the answers, but that’s ok. You must continue to focus on the factors that you can control.
It’s also important to understand the unique challenges faced by the very fact that you are a SaaS company. The monthly subscription model can present very clear benefits but also can be a challenge as you look for trends, sustainability, and repeatability in growth. It may not be easy to track or to rely upon an overall continuity, but there are factors that you absolutely can rely on: the value of your subscription model, as well as the loyalty and trust your customers have placed in you and your services. Those are both factors that you can’t and shouldn’t take for granted, and they both factor into why you also need to continually hone your referral generation procedures, as the best and most cost-effective way to address many of the challenges you’ll face in MRR growth.
Your MoM MRR growth calculation is a metric for determining your level of success as SaaS company, but it also offers insight into your customer’s satisfaction levels. If and when your customers are part of your recurring revenue stream, they are more likely to refer others to your company, which will further contribute to your growth and continued sustainability in the future. Just as your MoM MRR growth determinations must be a part of your business practice, you must also make referral generation an everyday part of your communications with your customers. Let them know how much you appreciate their recurring business, and also ask them to share the love by telling their friends and colleagues. It will make a difference in future MoM MRR growth calculations, and it will also help your customers feel more connected to you and your SaaS company.
Tap into your company’s most important asset: referrals. Try today.