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MRR, monthly recurring revenue is a normalized amount of money for a business’ forecasted revenue that is expected to be earned during a month’s time frame.
It is a known fact that MRR aka Monthly Recurring Revenue is a lifeline for SaaS business. Since they live or die off this scheme, you might want to take a notch up if you wish to see a boom in the SaaS market. Statistics claim that by the year 2023, the business shall grow at a compound rate of 17% with over $60 million.
In a subscription-based business, it is expected to regularize a recurring revenue to a monthly figure. You must have a track of your billing records and pricing plans over the time that is exactly what MRR is. Simply put, it gives you an exact status over how you are performing and can help to predict the next stage of your business, whether it is going good, bad, or ugly.
Calculation of MRR
A rather straightforward method to calculate MRR is by taking the total number of paying customers and then by multiplying it by ARPA. Now ARPA is nothing but the average amount of your customers pay up every month.
Say you have 10 paying clients and the average amount is $50 every month. By using the method of ARPA, you MRR = 10 x $50 = $500.
Now let us quickly look at 14 such amazing tips that assure you a consistent increase in your MRR, or monthly recurring revenue.
You can begin by applying effective expansion tactics, upsells being one of them. Upselling and cross-selling are two important terms in the vocabulary of SaaS.
For that, you can offer your customers more premium plans and services. Upgradation to a newer version is seen to increase the chances of customer stickiness. Not just that, you may offer a few extra features for a higher amount. Being an influential tool, it will boost your clients’ monthly spending. Even when they move onto a premium plan or add into your brand-new features.
Note: The key to successful upselling is reaching out to the right prospects at the right time.
Offering all of your best services under one whole bundle might just put you into unwanted trouble. Most of the facets in a SaaS package are put aside when the clients choose the features they require. And the rest is ignored.
Hence, you must establish a plan. Plan to split your features of the baseline product that yo market. Put the additional facets as an add-on service. Do not club all the features under a plan and then gift it to all of your customers. You will have to put the cheese carefully in the trap!
You will soon see that doing so will boost you a reliable strategy that will split your SaaS facets and also bring you more revenue.
Though, it is said that most of the SaaS companies, offer underpriced plans. To garner a quick win and rev your MRR, you might increase your prices by a dent, perhaps by 10, 20, or 50%, whichever suits your niche best. If you are underpriced, you will experience a marginal hike in churn and a massive nudge in your monthly recurring revenue as well.
Reality says that underpricing a quality product might provide useful functions that act as a hindrance to the perceived values, which might kick your business. And if you are worried about losing your customers with a price hike, you do not have to worry as long as you render value. Remember, it is value and quality that are like the black horse in any race.
One of the vital ways to increase customer retention is by consistently generating the number of qualified leads. You ought not to only focus on the existing customers all the time. You might just end up alienating them away and you do not want that, do you?
Identify your target audience and zero in your marketing pushes away. Tailor all your efforts to reach out to their needs and desires respectively. Once you roll in an effective customer acquisition strategy into the game board, your business is all set to grow MRR in exponential terms.
When you start an annual prepaid plan, your clients’ loyalty will take to rise. Having said that, you must note that alluring the customer base to opt for a whole year in advance payment should be a daunting task to take up. And that is where you will have to mince your plan. By mincing, I mean you will have to add up a few discount offers, or maybe some incentivize to the clients so that they commit longer.
While free plans allow your clients to test your product without any commitment, there is still no guarantee that the customer will stick around until the end. Also, when you offer a little too much free, there is a good chance that the upgrade rates will decrease.
Consequently, as you lessen your free plan facets, and instead use time-restricted free trail plans – this will help augment the upgrade rates in return. For instance, you can take the example of Dropbox. Now Dropbox charges its clients on the basis of the amount of storage they use. Going for similar technics usually lessen the adverse impacts on your MRR.
It is of no good news to underestimate the feelings of your clients. What they think and how they feel about you is of utmost importance to your company. This way you can consistently maintain and augment your MRR. Ensure that your customers are well taken care of and are receiving constant personalized attention. When you keep your customers happy, they tend to become fiercely loyal to you and advertisement your brand too.
Your monthly recurring revenue can never be jeopardized when you put quality first. The quality itself should speak for itself. Especially, when it comes to SaaS models, it basically simmers down to the aspect of quality that makes the verdict. You need to ensure that the said quality and value are clearly conveyed to your clients. This is a surefire method of keeping your subscriptions active and revving up your MRR.
MRR is a product of your clients, which in turn is a product of your leads. Pull in some of the strategies such as in-product marketing which helps you to get a huge return of investment. As long as you are able to calculate the marketing ROI, you will see a surplus increase in leads, which eventually will lead to higher MRR.
To increase your monthly revenue growth, you need to target yearly growth. Sounds confusing? If you offer monthly contracts, your customers get a chance to churn after a month. This can be because they have the exit window, or because they did not understand the product, or because they are unaware of its long-term benefits. If you offer pre-payment annual plans, the chances of customers committing to the product or service are higher.
For example, a customer who signs up with a company on a monthly basis leaves after three months. If the customer signed up with a pre-payment contract, they could not have left. This will increase customer retention and increase MRR.
In some cases, the customer may ask for a discount to pay early. This is something they would do after noticing that it will hit their cash flow. However, this discount will be greater than the churn and lead to a net gain in MRR. While fixing the contract terms, payment terms are extremely important. You need to measure how every term has performed and work backward accordingly.
Increasing MRR is not the job of the CS department alone. It is the combined efforts of multiple departments and also includes planning and execution. Regardless of the size or type of company, it is important to automate certain processes. This will improve business strategy and simplify processes. Automating email sequences and tasks makes itpossible to be there on time for the customers. For example- If you automate the scheduling of messages, it is highly possible that customers feel happy they are important. Some actions and processes must not be automated, however. Automating emails, reminders, notifications, and messages can save a lot of time for the business and still produce the desired effect of customer retention. The customer feels engaged and connected with the business. In SaaS companies, automating customer tasks has become a necessity due to the increasing workload and burden to align with customers across the time zone, globe, and product offering.
You can increase monthly revenue growth by choosing a smart automation tool and implementing a smart automation workflow.
As per a 2021 survey by Semrush, 84% of respondents in 1500 businesses have a proper content marketing strategy in place. If your B2B SaaS company is not yet leveraging the benefits of content marketing, it is high time to do so. With content marketing, you can increase word of mouth, spread brand awareness, and directly increase the number of signups as well.
A consistent and clear content strategy can do more than any form of marketing. It improves the entire marketing performance and can help increase the MRR. Creating content alone is not helpful. You need to distribute it, perform SEO, and content audits, boosting keywords, and more.
Another aspect of this is adding the right tutorials. These tutorials will offer direct help to customers on issues they need help with. Content in any format- videos, blogs, tutorials, social media will help improve business performance and enhance results. The key is to choose aspects of customer interest and impart education in that aspect.
There is nothing known as overdelivering customer experience. To improve MRR, you must capture revenue in a consistent format. So, if customers stay with the brand, the MRR will automatically improve. Instead of signing up new customers every three days, you need to focus on customer retention. Retention is better for MRR than customer acquisition. You need to retain your customers for a long time to ensure they give you the benefits of positive net growth. The key to customer retention is improving customer experience. Customer experience is helping customers achieve optimal results by being there for them at all touchpoints and communications. A good customer experience begins with customer onboarding, where every customer feels that the product will be of high value to them. This will improve MRR and enhance revenue plans. This experience depends on the type of business as well. For a SaaS business, the focus will be on customer onboarding and education. For an e-commerce store, the focus is on customer communication, messaging, and updates.
Referral programs are a fantastic way to experience an MRR boost. There are distinct types of referral programs. Existing customers will get a cash reward if they refer to other businesses in one type. They get a fixed amount irrespective of the ticket size. Another type is if customers get a percentage when they refer to someone. This means it promotes the customers to stick to the brand and encourages others to join. This helps customers help other clients find solutions. Referral programs also improve MRR since they bring in new business. Since existing customers already have an idea about the value of services, they can help new customers come on board and enhance their growth.
Another way of offering a referral program is a one-time bonus. You can encourage customers to bring in X number of customers on a regular basis. This motivates them and also encourages others to try. Referral programs are a highly popular technique since it involves lower CAC. CAC or customer acquisition costs are relatively lower in the referral programs. This is why customer retention rates are also generally higher. As per research by Deloitte, if other customers have referred a customer, the chances of them sticking on are 37% higher than others.
Non-cash incentives will also ensure customers are interested in the referral program. It has been shown that they are 24% more effective than cash incentives at boosting referral results.39
One of the best ways for any SaaS company to amp their revenue stream is by truly understanding MRR. Further, keeping a close eye on the monthly recurring revenue will eventually become an essential facet of doing business after adopting the SaaS model. It would not only lead to precious insights into your company but also enhance the effectiveness of your marketing strategies.
Kaustubh Sangam is a Customer Success Analyst with 2 years of experience. Committed to delivering exceptional customer experiences and driving business growth. Proficient in leveraging data analysis to optimize customer success strategies.
Published July 13, 2020, Updated June 07, 2023
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