Companies have a plethora of metrics to choose from when it comes to measuring their success: new customers, monthly sales growth, net profit margin, retention rates, net promoter score, the list goes on. But one metric that can serve as a reflection of all of these is monthly recurring revenue (MRR) — especially when it comes to SaaS companies.
“At the risk of stating the obvious, MRR is one of the best metrics to measure how much revenue you’re bringing in and retaining on a monthly basis,” says Guido Bartolacci, New Breed’s Head of Demand Generation.
MRR is the foundation of building a predictable revenue model. It can help you forecast where you may encounter gaps as you strive to hit your revenue goal. It can aid in setting milestones for your revenue targets in a given timeframe by providing context through trackable metrics.
Benefits of a Recurring Revenue Model
For all of its benefits, MRR may not be the first metric that marketers think of when deciding their North Star metric. But, there are many benefits to caring about your company’s recurring revenue. For example:
Milestones and Measurement
One large benefit of a recurring revenue model is the ability to easily measure milestones.
“Since MRR is one of the most important and widely used metrics when it comes to measuring the health of SaaS businesses, it’s a great metric to set goals or milestones around,” Guido says. “For example, setting a goal to increase MRR by 50% over the next 6 months means you need to A) retain your existing customers and B) acquire new ones.”
“One of the reasons why subscription models work so well is that they allow a company to count on a certain amount of revenue on a recurring basis rather than worrying about one-off, unpredictable sales to hit their business goals,” Guido says.
Essentially, this is guaranteed revenue, which is what makes it more predictable compared to other models — because it’s a monthly subscription, you can count on the revenue income from those buyers and plan your company expenses accordingly.
When your marketing and sales teams are measured on the same metric, you’re going to have a higher chance of unifying the two teams. In turn, this increases your marketing team’s ability to address the pain points your buyers will have. As these teams continue communicating, they’ll learn from each other and become more effective. Your sales team can provide more nuanced information about the prospects they’re working with and marketing can return the favor by creating content that attracts and converts more high-fit leads for sales.
MRR might not be the first metric that comes to mind when measuring your marketers’ performance, but MRR can make a huge difference in a company’s alignment. MRR can help build connections and tie things together between your marketing and sales teams. But ultimately, MRR is key to establishing milestones and knowing what to expect in your revenue model.