To answer the question of How to increase SAAS Monthly Recurring Revenue and Annual Recurring revenue; let us first take a small journey through what the concept of Monthly Recurring Revenue and Annual Recurring Revenue actually want to convey us?
Introduction to the Monthly Recurring Revenue (MRR):
Monthly Recurring Revenue merely is defined as the recurring revenue organized in your account monthly.
How to calculate MRR?
Monthly Recurring Revenue = Number of customers X Average Billed Amount.
Let’s not get into many technicalities here, as we need to focus more increasing the Monthly Recurring Revenue (MRR); because that is what ultimately we are concerned here. Right? One by one we shall deal with different ways of boosting your company’s MRR so that it can fly with vibrant colors.
Graphical representation of an example of a Company’s Monthly Recurring Revenue:
Hike your product price by 20 or even 100%
Yes, you heard it absolutely right. What most of the SAAS companies’ today focus on is they keep their product price to a minimal level, and this result in them with low monthly recurring revenue. Just you need approximately 6-8 to scrutinize your product from all perspectives and finalize its price. The most important factor here which needs focus is to analyze the average price responsiveness of your targeted clients.
To grab hold of a boost in your firm’s MRR, raise your product price either by 20% or else even you can go up to 100% completely. The marginal 1- 10% hike in price won’t produce a considerable difference in your MRR.
Knock out the Free Trails Plans:
Remember you are here to run a business and not an organization which donates from your own pocket. Work with company maximizing strategies. Let’s say the more and more customers make use of your company’s free trial services and they are delighted with the offerings. You too have received a considerable amount of positive response from the customers, then why do you still need to continue with the free plan? This is the actual time when your product or the service requires a price upgrade. The growth of product returns for the firm and the customer satisfaction must go hand in hand with the business to thrive in the competition.
Currently, if you satisfy your customers by revealing all your trump card features, then your business might be in trouble in near future as you may lack something to upgrade your product or service with. An average customer in case of the product or the average client in case of the service may not utilize all of your product characteristics. They will focus on only those who matter to them the most. Other features for such customers will be useless. Instead of revealing all your product or service features in one go, split them into multiple batches under the name of product upgrade. Those who wish to have the add-ons will anyhow have to deal with its price.
Raise your Standards:
If most of your clients are big firm generating a considerable turnover, and your product is priced minimally, it would create a massive margin in your company’s profit. The big firms no matter how much it costs are willing to pay you as long as the service you supply is accountable to them. But if the charge is focusing on small enterprises, then it would be more favorable for your big fat clients to gain profit since they are receiving every feature they need and that too at a subsidized cost. If you plan out the bifurcation of your functions into two categories- first to target the big firms and the next to target the small firms, and then accordingly introduce the features as per their taste, you might end up maximizing the monthly recurring revenue for your firm. Both the parameters of the business gets satisfied here- the clients are happy with what features they receive, and your business to functions smoothly with an increase in your MRR.
Try increasing your pre-payment mode of dealing with the customers:
Mostly the services are considered under this category. The cost of the service is rendered by the clients on a monthly basis as per their convenience. The focus of the service provider here should lie in customer retention through persuading their clientele to make pre-payments for an annual subscription. This will result in increasing your company’s MRR.
Now let us wind up with the concept of Monthly Recurring Revenue and quickly switch over to Annual Recurring Revenue.
Introduction to the Annual Recurring Revenue (ARR):
You can say that the Annual Recurring Revenue is something which tells us about the income the firm received annually through the service provided by it to its clientele on the annual subscription basis. Simplifying the concept more, the ARR measures the conditions of your subscription business.
How to calculate ARR?
Annual Recurring Revenue = Total Contract Value/Relative number of years
Graphical representation of an example of a Company’s Annual Recurring Revenue:
Some ways with which you can boost your Annual Recurring Revenue:
Improvise your Customer Acquisition strategy:
This can be done by updating your last published content so as to gain a top ranking position in the search engines. This can be done by utilizing keywords from your existing content and then subsequently engulfing it into the older material so as to rate the older content high amongst several blogs that you publish daily. The interlinking between the new and old elements via the appropriate keywords enables it to receive a significant page boost. Otherwise, it would have been lying somewhere in the archives zones. There are many more ways to improve your customer acquisition strategy.
In other words, optimize your Customer Acquisition Cost (CAC) in such a way that your CAC is low in comparison to the Lifetime Value of the Customer (LTV) and your Customer Acquisition Strategy accounts for the perfection.
Finalizing the pricing strategy for gaining the high growth of your products:
Here you need to focus on three parameters. The first to focus on is analyze whether the price you charge for your service or the product is worth the features it offers to the customers or the buyers? Try to rationalize your client’s needs for a particular function and then fix your base value for the service to be provided to them.
The second is to focus on whatever price you decide to go ahead with the project for, makes some sort of sense as per the feature you provide in the subscription.
And lastly, does your price grow with the customer satisfaction? The first two principles you can say focuses more on the part of the customer profit. This last one is wholly worth to you. After all being in a business sector, your primary focus should rely on your profit maximization in parallel to the customer satisfaction. If these two features grow parallel, it will ultimately boost your MRR as well as ARR.
How to retain more and more customers:
This is finally in hand with the Lifetime value of the customers. As you concentrate on increasing the retention of the customer, you finally focus on improving their lifetime value with you. Yes, one can say that both the concepts of retaining customers and lifetime value of the customers are directly related to each other. This leads to boosting both of your Monthly Recurring Revenue and the Annual Recurring Revenue and in turn drives you towards the profit maximization and heads you towards a more stable business environment.
Annual Recurring Revenue (ARR) is mainly a useful tool in determining what is the condition of your business by assessing the performance of the firm in concerned areas, the strategy to track what consumer expects and needs out of the service provided by your enterprise so as to raise the cross sales and up sales of the concerned product, a continuous monitoring of the company’s annual recurring revenue, the enterprise is able to drag a frontier between what are the expectations of their clients and subsequently aids in focusing on which feature needs a recall for getting upgraded.
Annual Recurring Revenue for this purpose is measured in the context of two values; the first one is an absolute value and the second one being a relative value.
Hence ARR monitoring is an essential factor as it contributes to
- Annual Recurring Revenue incurred from the increase in your company sales for the particular service being provided by the company.
- Annual Recurring Revenue incurred from the renewals of the in-operation services already dispatched to the customers.
- Annual Recurring Revenue incurred from upgrading the in-operation service rendered to the client either in the middle of the term or during the renewal of service provided.
- Annual Recurring Revenue incurred in the form of a loss from downgrades either in the middle of the term or during the renewal of the service provided to the customer.
- Annual Recurring Revenue incurred in the form of a loss from the disconnection of the customers due to the product not satisfying their needs or expectations.
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