Softrax

Net MRR Growth

What is Net MRR Growth

Net Monthly Recurring Revenue (Net MRR) Growth is a metric often used by subscription-based businesses, particularly in the SaaS industry, to measure the growth or expansion of monthly recurring revenue, after accounting for any churn, contractions, or downgrades in existing subscriptions.

What is the Formula for Net MRR Growth?

To calculate Net MRR Growth, you first need the formula for Net MRR:

Net MRR = Starting MRR + New MRR – Lost MRR

Once you have your Net MRR, you can calculate the growth within a set period by using the below formula:

Net MRR Growth = (Net MRR for Ending Month – Net MRR for Starting Month) / Net MRR for Starting Month x 100%

In order to calculate the net monthly recurring revenue growth, you will need at least two months of data. Net MRR Growth is usually expressed as a percentage.

What is an Example of a Net MRR Growth Calculation?

A new subscription box business wants to calculate their net MRR growth from the past two months. Below are the tables for the starting MRR, new MRR, upgraded MRR, churn MRR, and contraction MRR for each month.

August

Starting MRR
New Customers
Upgraded Customers
Churn MRR
Contraction MRR
$10,000
$2,000
$500
$1,000
$200

September

Starting MRR
New Customers
Upgraded Customers
Churn MRR
Contraction MRR
$11,300
$3,000
$700
$600
$400

First, we need to calculate the net monthly recurring revenue for each month.

August Net MRR = 10,000 + 2,000 + 500 – 1,000 – 200

August Net MRR = $11,300

September Net MRR = 11,300 + 3,000 + 700 – 600 – 400

September Net MRR = $14,000

Then we can calculate the net MRR growth between the two months:

Net MRR Growth = (14,000 – 11,300) / 14,000 x 100%

Net MRR Growth = 2,700 / 14,000 x 100%

Net MRR Growth = 0.19 x 100%

Net MRR Growth = 19%

 

The Net MRR Growth between August and September is 19%. This means that after accounting for new customers, upgrades, churns, and contractions, the business saw a net growth of 19% in its Monthly Recurring Revenue.

What is a Good Net MRR Growth Rate?

A “good” net MRR growth rate can vary depending on the stage, size, and industry of the company. However, here are some general benchmarks:

  • Early-Stage Startups: Growth rates can be erratic. In the early days of a startup, especially if starting from a low base, MRR growth rates can be very high (even over 20% month-over-month). However, sustaining such high growth rates becomes challenging as the company scales.

  • Growth-Stage Startups: A monthly growth rate of 10% to 20% can be considered good for SaaS companies in this category. Achieving this consistently can lead to significant annual growth.

  • Mature SaaS Companies: For larger, more established SaaS businesses, a monthly net MRR growth rate of 3% to 8% can be viewed as strong, leading to a healthy annual growth rate.

  • Public SaaS Companies: Many successful public SaaS companies target an annualized growth rate of 20% to 40%. On a monthly basis, this translates to roughly 1.5% to 2.9%.

Several factors can influence the net MRR growth rate:

  • Industry: Some industries naturally have higher growth rates due to market demand, technological advancements, or other factors.

  • Product: If a product fills a significant gap in the market or is revolutionary, higher growth rates might be expected.

  • Competition: The presence of strong competitors or a saturated market can impact growth rates.

  • Pricing and Monetization: How a company prices its product and its ability to upsell or cross-sell can significantly influence MRR.

  • Churn: High churn rates (customers leaving the service) can drastically impact net MRR growth. It’s essential for businesses to continuously focus on customer satisfaction and retention.

While these benchmarks offer a general idea, it’s essential for businesses to set their growth targets based on internal capabilities, market research, and long-term strategy. It’s also useful to compare growth rates with similar companies in the same industry or of similar size.

How Can You Increase Net MRR Growth Rate?

Increasing the Net MRR (Monthly Recurring Revenue) Growth rate is a key goal for subscription-based businesses looking to expand and improve their financial health. To achieve this, you need to focus on various strategies and tactics aimed at boosting your revenue while minimizing customer churn and contractions. Here are some ways to increase your Net MRR Growth rate:

  • Acquire More Customers
    • Invest in marketing and sales efforts to attract new customers to your service.
    • Implement referral programs or partnerships to incentivize existing customers to refer new ones.
    • Optimize your onboarding process to improve conversion rates for free trials or sign-ups.

  • Upsell and Cross-Sell
    • Identify opportunities to upsell existing customers to higher-tier plans or cross-sell additional features or services.
    • Use data and customer segmentation to target the right customers with relevant offers.

  • Retain Existing Customers
    • Improve customer support and satisfaction to reduce churn rates.
    • Implement customer success programs to ensure customers are getting value from your service.
    • Address customer concerns promptly and proactively.

  • Price Adjustments
    • Regularly review and adjust your pricing strategy to ensure it reflects the value you provide.
    • Consider introducing tiered pricing or value-based pricing to capture different segments of the market.

  • Reducing Churn
    • Analyze the reasons for churn and work on addressing common pain points or objections.
    • Offer incentives to customers who are considering canceling their subscriptions.

  • Monitor and Optimize
    • Continuously monitor and analyze your MRR data to identify trends and areas for improvement.
    • Use analytics tools to track user behavior and understand how customers engage with your service.

  • Expansion Revenue
    • Encourage customers to expand their usage of your service. For example, in the case of a software product, this might involve encouraging the adoption of additional features or the use of the service in more areas of their business.

  • Customer Feedback
    • Gather and act upon feedback from customers to make necessary product improvements.
    • Understand customer pain points and desires and tailor your product or service accordingly.

  • Customer Lifetime Value (CLV)
    • Focus on increasing the CLV of your customers by not only retaining them but also increasing the revenue you generate from each customer over time.

  • Reduce Involuntary Churn
    • Address payment-related issues promptly to reduce involuntary churn due to failed payments.
    • Implement automated billing and payment reminders.

  • Operational Efficiency
    • Optimize your operations to reduce costs and improve profit margins.

  • Invest in Marketing and Sales
    • Expand your marketing efforts and sales teams to reach a wider audience and close more deals.

  • Strategic Partnerships
    • Explore partnerships with complementary services or businesses to reach a broader customer base.

It’s important to note that achieving significant Net MRR Growth may take time and a combination of strategies. Regularly track and assess your progress, and be prepared to adapt your approach based on the feedback and results you receive from your customers and data analysis.

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