“Focus on MRR” is sound advice for any SaaS model company.
Tracking monthly recurring revenue ensures that month over month growth defends against user churn and builds a defensible moat.
Obsessively track MRR
At Localize, we obsessively track our metrics.
MRR is a metric we check daily. Our whole team knows our MRR and how much it’s growing week over week and month over month.
It’s our yardstick for whether we’re pushing the company forward. If we’re growing week over week we’re succeeding. If not, we’re failing.
Tracking MRR is great, but not enough
Don’t miss out on some key data insight beneath that number.
Here are the four metric key points you should be tracking.
- New MRR from new customers
- New MRR from account upgrades
- Lost MRR from account downgrades
- Lost MRR form customer churn
Slide from Social+Capital Partnerships Presentation @ SaaStr 2015
How to calculate Net New MRR growth
Your net new MRR is an aggregate of four metrics over a period of time.
Here’s an example of how to calculate Net New MRR…
+ $10,000 (new customers) + $2,000 (customer upgrades) - $500 (customer downgrades) - $500 (customer churn) ---------------------------- = $11,000 (Net New MRR)
Why Net New MRR is important
Having a nice chart of MRR growth over time is great. But do you really know what’s driving that growth?
The real insight comes from understanding these specific drivers.
- Is customer churn decreasing?
- Is customer upgrade velocity increasing?
- What will your MRR be 6 months later?
The last question is perhaps the most revealing. If you turned off the top of your funnel, would revenue remain constant, or would it tank? The most stable SaaS companies have very low churn, which means that most of their revenue from new customers contributes directly to increasing MRR.
Breaking your MRR into these 4 categories is key to understanding what holes you should be patching and what to focus on.
Thanks for reading… and happy building!
