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Analytics | Jul 27
Melissa King on March 2, 2021 (last modified on March 15, 2021) • 21 minute read
When we asked software as a service (SaaS) sales professionals about their most recommended sales metrics to track, many of them brought up monthly recurring revenue (MRR).
But if you don’t know what MRR is, why it’s important, or how to track it, it’s just another number on your dashboard. We’ll provide the context you need to understand MRR and use it to monitor your business success.
Here’s what’s on the agenda for today:
Monthly recurring revenue is the regular income you receive from selling your product or service. Hubspot breaks the definition down by its base terms:
It’s worth pointing out that MRR consists of revenue that you can expect to earn on a regular basis instead of one-off sales. Since MRR captures ongoing revenue, service and subscription-based businesses like SaaS companies find it especially important.
Depending on your approach to analytics and business needs, you can track a variety of MRR types, such as new MRR, churn MRR and net new MRR. If you want to figure out how the metric works on a basic level, you can also go for a standard MRR metric. Businesses new to revenue analysis can start simple with traditional MRR and branch out to other MRR measurements over time to get a more nuanced look at their finances.
The exact calculation for your company’s MRR will vary based on your business model.
Many companies can measure MRR using a formula involving average revenue per account (ARPA). To get ARPA, divide the revenue you receive from your customers by the number of customers you have. Once you have that number, use this formula to calculate MRR:
ARPA x Total Number of Accounts = MRR
You can also replace ARPA with your average revenue per user and number of accounts with number of users to calculate MRR for a SaaS business.
Spreadsheets make this process fairly easy for subscription-based businesses, as pointed out on Recur. List all of your customers for the month in one column and add their monthly subscription value in another. With that setup, you can sum up the second column to get your MRR and add more columns to segment and organize your customer list.
Editor’s note: If you use ProfitWell to track your subscriptions, Databox makes calculating MRR a snap. Download the Profitwell MRR Breakdown Dashboard to check your number of users and recurring revenue for a given plan type.
Now that you know what MRR measures, it’s clear that increased MRR contributes to improved business stability. So, how do you keep that number going up? We asked 20 experts in professional services, SaaS, Ecommerce, and information products how they increased their MRR.
As you can see from the graph below, about 4/5 of the professionals we surveyed had a year-over-year MRR growth rate of 15% or higher, with a whopping ~16-17% doubling their MRR or more. You’re in good hands getting advice from these experts.
They brought up 11 different tips for increasing MRR:
With so many potential customers turning to search engines for product recommendations, staying on top of your SEO is critical to standing out from the crowd. According to the marketers we talked to, your SEM and conversion numbers can also inform your business or product strategy to help you improve your MRR.
Nicolas Tranchant of the Ecommerce store Vivalatina achieved a growth MRR of 40% in 2020 by adjusting the store’s product and website according to purchase trends and SEO best practices.
Much of the process involved curating the Vivalatina inventory to focus on products that sell. According to Tranchant, “I made a Pareto analysis of my sales for the last 5 years and discovered that 65% of my sales were made of only 23,5% of my products, those which price was above $500, despite the fact that 70% of our products listed online were priced under $500.”
Keeping that trend in mind, Tranchant reworked their inventory with SEO guiding the way: So, during all the year, I… deleted the least profitable products of my online boutiques (those which had low traffic and low profitability) and found 250 new profitable products’ keywords with these criteria: monthly volume 150 at least, keyword difficulty low to medium, competitors’ price for this keyword above $500.”
For further optimization, Tranchant also added more products that met the new criteria and cut down on “zombie” pages for better SEO. The results? “Our revenue has increased 71% in the last semester of 2020 compared to the first one, and 40% in 2020 compared to 2019.”
How can you improve your SEO like Tranchant? We have plenty of SEO tips for beginners that include setting up your SEO toolkit and executing a strategy. There are plenty of free and low-cost tools out there that you can start with to make your business more search-friendly.
Online information product company Resume Lab’s Emilia Kobza, reminds us to optimize on both the SEO and product sides of marketing. Kobza’s MRR improvement strategy involves “Honing our SEO/SEM efforts to continuously grown traffic and volume of visitors. At the same time, incrementally improving the product to maximize the conversion rate. Thus, by working the top and bottom of the conversion funnel we’re looking to maximize the MRR.”
Working off these two pieces of advice, we can conclude that optimizing your online business for better MRR takes continual improvement on multiple levels. In addition to enhancing your SEO and SEM, look at your product and how it integrates into your online strategy.
Survey respondents across industries had the same tip to share: Upsell, upsell, upsell. Upselling is the practice of promoting add-on features or items when a customer’s about to buy your product. Think tactics like suggesting a higher-tier subscription or protection plan at the point of sale.
The data we collected in 2019 lines up with this advice. About 35% of the sales professionals we polled benefited from a conversion rate of 20% or higher from upselling.
Beekeeper’s Alexandra Zamolo from the SaaS industry considers upselling a top priority in increasing MRR, stating, “If you really want to increase your MRR, then it’s time to really target your upselling strategies. Be sure to include upsell opportunities (at a discounted price) in your email marketing, newsletters, and even as CTAs in your online content. If you get really creative, there are numerous ways to upsell.”
By infusing upsells into every aspect of your content marketing, you can keep your add-ons at the top of your customers’ minds for when they’re ready to purchase. Existing customers will get reminders about possible upgrades as they use your product.
Andre Oentoro from professional services company Milkwhale takes a more targeted approach, suggesting, “A good way to upsell is to offer products or services at the right time — a time when a customer has hit certain milestones.”
Looking at Zamolo and Oentoro’s advice, it seems that the right time for upselling will depend on your customers and business strategy. If you have a solid content marketing plan, Zamolo’s advice might work best for you, while Oentoro’s tip could help if you have a strong sales department. Try one or both techniques and analyze your data to see which suggestions improve your MRR.
Ecommerce company Because Market’s Heidi Robinson advises prioritizing certain products in your upselling, explaining, “Everyone has upsells and additional features or products that they can offer their customers. However, think about upselling your higher-ticketed items over those that won’t bring in as much revenue.”
Robinson’s tactic offers two benefits. First, it helps you sell high-priced products to customers already willing to pay money. Second, it maximizes the potential revenue you’ll receive from your upselling efforts.
Increasing your MRR can take plenty of work across your departments, including strategy and execution. No matter what size company you manage, automating some of your growth processes will simplify your job and give you more time to refine your business strategy.
Sam Harper of Ecommerce business Hippy Feet credits their company’s recent growth to automation, saying, “After a year of strong growth for Hippy Feet, the single most impactful thing we did was automate portions of our customer acquisition and retention process. This includes automatically scaling ads and email sequences that support our customers long after their purchase.”
Take note that Harper mentions automating portions of their processes rather than every step. Look for ways to automate tasks that don’t sacrifice the human side of your business, such as ad placement or email scheduling. Meanwhile, during direct interactions and other processes that need that touch of humanity, don’t automate away actions that require your attention.
Most sales professionals in the Databox network try to follow this rule by automating repetitive tasks. They also offered suggestions such as segmenting your automation workflows, blending multiple automation tools, and carefully testing your automated email campaigns.
DetroitInsure.com’s Melanie Musson, who works in information products, turned to their customers when their company needed to tailor their sales strategy to their audience. Musson says, “We used survey data to develop better options to meet our audience’s needs. We ended up with more options that were less expensive than what we originally offered, but because they were better tailored, we gained more customers.”
For Musson’s customers, a product that met their needs appealed more than a product that promised quality through a higher price. Of course, your customers might consider the prestige that can be associated with a higher price as one of their priorities, so the only way to know is to ask them yourself.
Depending on your business scale and budget, you have plenty of online survey tools to choose from. Consider starting with a free or low-price option like SurveyMonkey or Google Forms and upgrading your plan or software from there.
When designing a customer survey, try to keep it as direct and unbiased as possible. Qualtrics recommends avoiding leading or biased questions, asking one question at a time, and using language and terminology on the customer’s level.
Editor’s note: Professionals that run surveys through SurveyMonkey on a regular basis will enjoy the SurveyMonkey Account Overview Dashboard Template for Databox. It monitors the number of responses you receive to help you design surveys that customers want to take.
Semrush’s 2021 survey of more than 1,500 businesses found that 84% of respondents have a content marketing strategy. If you’re one of the 16% that doesn’t, it may be time to invest in this popular marketing technique — it helped some of the sales professionals we consulted skyrocket their MRR.
Marko Saric of Plausible Analytics explains that their SaaS company grew from $400 MRR in April 2020 to $10,000 MRR in early 2021. How did Plausible do it? According to Saric, “The most effective play was to start publishing regular content as that has helped us spread the word, increase brand awareness and the number of trial signups which directly impacted our MRR too.”
Saric’s team has a straightforward and consistent content marketing strategy that plenty of businesses can pick up, and it’s greatly improved their marketing performance. Saric says, “We’ve published approximately one post per week over the last year and it has worked wonders for us. We’re getting more buzz in social media, we’re getting talked about in different niche communities and Google organic search has gone from sending us almost nothing a year ago to being the top source of our trial signups now.”
Content marketing’s potential for boosting organic search traffic provided some of the most significant benefits to the Plausible team. Make sure to perform regular SEO content audits to ensure that your hard work on SEM pays off.
Brian Turner from ConvertBinary, who works in the information products industry, has a story that reminds us that content goes beyond blog posts: “We added written tutorials to our website in addition to our binary code converter and saw a significant increase in traffic (220%) and as a result our MRR.”
Both of these content types — tutorials and interactive tools — offer direct value to customers. When considering what types of content you want to publish to improve your overall business performance, think of what topics and formats will offer the most benefits to your audience. By becoming a go-to resource in your industry, you’ll increase your brand authority and build trust with your customers.
Double X Digital’s Brandon Spears, who offers business services and a CRM SaaS, experienced their highest MRR boost from starting a referral program. Their referral program follows this process:
“Only our existing clients can get cash compensation for referring other business owners. Out of those business owners that we close, we pay our referrals $500/mo. They can only keep getting this $500 if they remain a client of ours.
This creates an incentive to stick with our company through the ups and downs that may occur and also gives our clients incentive to help the other clients they referred close the leads we bring them.
This creates growth from referrals and higher retention because of the benefits that these clients receive from the program.”
The Double X Digital team uses a targeted approach and ongoing incentives to keep their referral program going strong.
By honing in on current customers, they can raise their chances of getting referred to businesses that will find value in their services. After all, companies that already use their services will have a good grasp on Double X Digital’s benefits and know similar businesses that could take advantage of them.
While many referral programs offer a one-time bonus, the Double X Digital referral program has monthly incentives that encourage customers to stay with them. The regular $500 reward motivates customers to stay customers and keep referring other businesses to the service.
Promotions can help a business draw in customers, but if you can’t get those customers to stay with you, you could end up losing money. To run promotions that increase MRR, try modifying your strategy, such as pivoting to promotions from customers ready to buy.
Tony Mastri from MARION Marketing Agency, who works in professional services, says, “Email marketing that leverages appealing promotions has been very effective for our firm.”
However, Mastri attributes that success to careful strategy over the promotions alone, explaining, “We’ve been very careful as a value-based business to avoid discounting our services as part of a promotion. Instead, we opt to center our promotions around perks like a one-time advertising credit upon signup.
Our most successful offer so far has been a $500 digital ad credit for first-time MRR customers. This is enough of an incentive to generate interest without attracting a customer that is only interested in discounted services.”
Mastri’s agency reduces a customer’s initial barrier to purchase with the $500 credit so the client can feel more comfortable paying full price after experiencing the agency’s services for the first time. Meanwhile, MARION Marketing Agency doesn’t have to worry about losing MRR in future purchases.
To create a promotion that takes your customers’ buying behavior into account, research their barriers to purchase throughout the sales funnel. Brainstorm promotions that can help them get over those barriers without cutting into your bottom line.
The core of MRR’s reporting value is its ability to capture the consistent revenue you receive. Therefore, it makes sense that customer retention will impact your MRR.
As Growth Hackers Agency’s Jonathan Aufray in the professional services industry puts it, From my experience, the goal isn’t to keep signing up new clients but rather focusing on retention. If you retain your customers longer, you don’t need to close many new deals to increase your MRR.”
Of course, these arguments beg the question: How can business owners increase customer retention for stronger MRR?
“By overdelivering,” Aufray answers. “It sounds easy, but it’s not. Make sure that you overdeliver and that your clients understand well the value they get from you. They need to know that if they pause the collaboration with you, it will be hard to recover from it or find the same quality and results elsewhere.”
In other words, you need to make yourself invaluable and irreplaceable to your client by giving them the best customer experience possible. So, then, what do you do to overdeliver?
Publift’s Colm Dolan, who offers a SaaS product to customers, explains how their company over-delivers: “At Publift, we take the time to make sure our new clients get the best optimizations possible from the very beginning of our partnership. This means we apply human know-how and years of experience to achieve optimal results for our customers. Our understanding that every customer is different, therefore requiring individual attention, has resulted in our sustained increase in MRR as a business.”
This personalized method requires plenty of data and strategy. Dolan says, “Specifically, we conduct a detailed analysis of each client’s past performance and build out detailed revenue-enhancing plans for each customer based on their business overall. This tailored onboarding experience ensures our product is used to the best of its capabilities, maximizing revenue for both us and our customer. We continually work with each client to tweak and improve performance, further driving our business’s MRR.”
As you build strategies to improve your MRR through customer retention, pay close attention to the connections between your MRR and customer retention metrics. The best numbers to track will vary based on your business model. For example, if you have a subscription-based service, you might want to watch your customer churn, while an Ecommerce store may focus on a repeat purchase ratio.
If you have a B2B product and only focus on small businesses, you could be missing out on the higher revenue associated with enterprise customers.
“Moving upmarket and going after enterprise customers is rewarding and a great way of increasing MRR,” says the SaaS Kinsta’s Tom Zsomborgi. “Essentially it involves selling to larger teams and businesses. While the cost of acquisition is higher and the sales process takes more time due to the nature of how big businesses work, these customers spend 10-30x more than your average customer, meaning that landing a few enterprise customers a month has a big impact on your MRR growth. Enterprises have higher and often custom needs and they are happy to pay the prices.”
When you focus on larger businesses over smaller ones, you can also afford to work with fewer accounts, allowing you to dedicate more time to each customer. This strategy plays into our previous point about overdelivering. Invest in your enterprise customers, and they’ll pay you back in dividends.
SaaS professional Kristie Holden from Marketcircle agrees with combining an enterprise focused on dedication to the customer, crediting Marketcircle’s MRR growth to “Shifting our attention to focusing on increasing our average deal size by bringing in larger accounts (our product is priced per user) and having a more high-touch sales model to ensure these customers are onboarded and have higher chance of retaining.”
As Holden points out, Marketcircle’s user-based pricing makes it especially important to onboard customers with larger business sizes. If you charge per person, pivoting to enterprise sales can maximize your revenue per account.
Some businesses choose to work with companies of various sizes, which is also a valid approach. But, keep in mind this advice from MGC Decks’ Michael Gasbo, who works in the professional services space:
“If you represent enterprise companies, but your pricing policy is strongly based on SMB, there is a major disconnect between the value that big companies offer and the amount of revenue that you receive in return. By extracting more profit from it and having bigger budgets to invest in, big corporations would pay more for the solution than small businesses. They’ll still be the most demanding accounts, so throwing in an enterprise-style kit to start representing the value you already offer makes perfect sense.”
So, if you don’t charge your enterprise clients enterprise-level prices, you’re leaving money on the table and possibly undervaluing your company. Even if they receive the same services as smaller clients, they often require more attention, so don’t hesitate to scale your prices.
With all of that being said, your company might shine in the small business space only because of your company structure or offering. We recommend knowing your current customers as well as potential customers and bridging that gap by considering different pricing and customer service models.
The number and quality of your leads influence the number of audience members who convert to ongoing customers. If you don’t have enough leads, you won’t have a large enough pool to gain customers from. Meanwhile, if those leads don’t mesh with your offerings, they won’t stay around.
Carrie McKeegan from the SaaS company Greenback Tax Services highlights the importance of increasing your lead numbers, stating, “The answer to increasing your MRR is fairly simple – increase your leads. Work with your marketing team to ensure that you’re pulling in more leads from a variety of sources. Implement a targeted strategy that will reach your demographics, and then quickly qualify those incoming leads.”
Once you have plenty of leads from a wide range of sources, it’s time to refine them according to your customer data. “One of the keys to consistently increasing MRR is to make sure you’re retaining the new customers you’re bringing on board,” says SaaS professional Jordan Schneider from Soundstripe.
Schneider elaborates, “That means focusing more of your marketing efforts on finding the people you know have the highest likelihood of sticking with you for a long time.” Soundstripe identified customers with the highest potential for retention by surveying customers for better persona matches and analyzing subscription data.
What do you do once you have that information in your hands? Schneider answers, “By defining these two views of what we’re calling our ‘best customers’, we now have the ability to be much more intentional about focusing our marketing efforts to reach them instead of a broader audience. That means using language that speaks to the pain points of those individuals more often, adjusting targeting in platforms like paid social to more precisely reach those people, and even offering incentives or promotions to get them signed up for the best plan once they come to our site.”
Lead acquisition and retention start with marketing, but it certainly doesn’t end there. You can also draw in more qualified leads by tailoring your product to your most loyal customers.
According to the SaaS DoorLoop’s David Bitton, the company increased their MRR “…through consistent efforts in improving the services we offer our clients. We reconstructed our plans and ensured that each one optimally and comprehensively caters to our clients’ needs depending on their budget. We focused on curating services and cultivating excellent customer experience for our clients to increase retention and promote our overall MRR.”
Retaining customers for better MRR involves every part of your business. Start with top-quality lead generation tools and refine your marketing and product to attract customers who want to stay with you.
As the world around us changes, so do our industries. The question to ask yourself as you build MRR-increasing strategies is: Will your organization follow along?
The COVID-19 pandemic has caused industries across sectors to adapt on the fly. Ideally, we won’t have to deal with another worldwide crisis of this scale, but future changes in the state of the world will force businesses to adjust, and you’ll need to keep up to stay relevant.
The SaaS company SPOTIO’s Trey Gibson discovered that by adjusting their product according to pandemic-related demand, they experienced plenty of MRR growth. Gibson explains, “Being a platform for field sales reps has been challenging during the COVID lockdowns so we added in functionality, on a higher tier plan, that works for a hybrid sales model (field & at home). We’ve had both existing and new customers really attracted to the expanded capabilities.”
SPOTIO took an industry-specific challenge and adjusted their services accordingly to thrive in their new environment.
You can find a variety of free and paid market research tools out there to understand how your industry’s expectations change over time. Conduct regular market research, and when you see a change happening that conflicts with your current business model, consider ways to turn that challenge into a win.
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