What is SaaS MRR Growth?

SaaS MRR Growth is the increase in Monthly Recurring Revenue (MRR) for a SaaS company. It’s a crucial measure of financial health that shows how well the organization can draw in and hold onto clients, which eventually results in a viable business plan.

It is computed as the percentage growth in subscription revenue from month to month, accounting for a number of variables such as the acquisition of new customers, reactivations, upgrades, cancellations, and downgrades.

Long-term success depends on a company’s capacity to develop its clientele and provide recurring income, which is demonstrated by a robust MRR growth rate. To have a thorough grasp of the business’s financial performance, it is necessary to examine MRR growth in combination with other financial metrics. 

SaaS MRR growth is a key metric that shows how quickly a SaaS company’s recurring revenue is increasing. Here’s how it’s calculated:  

1. Calculate Net MRR for Each Month

First, you need to calculate your Net Monthly Recurring Revenue (Net MRR) for each month. This involves factoring in various components:

• Starting MRR: Your MRR at the beginning of the month.
• New MRR: Revenue from new customers acquired during the month.  
• Expansion MRR: Revenue increases from existing customers upgrading their plans or purchasing add-ons.  
• Churn MRR: Revenue lost due to customers canceling their subscriptions.  
• Contraction MRR: Revenue decreases from existing customers downgrading their plans.  

Net MRR = Starting MRR + New MRR + Expansion MRR – Churn MRR – Contraction MRR

2. Calculate MRR Growth Rate

Once you have the Net MRR for at least two consecutive months, you can calculate the growth rate:

MRR Growth Rate = [(Net MRR This Month – Net MRR Last Month) / Net MRR Last Month] * 100  

Przykład:

• Last month’s Net MRR: $10,000
• This month’s Net MRR: $12,000

MRR Growth Rate = [($12,000 – $10,000) / $10,000] * 100 = 20%

Because it provides unmatched insights into cash flow, stability, and financial health, MRR is essential to SaaS companies. It serves as a key performance indicator (KPI) that illustrates how predictable future revenue is, facilitating growth initiatives and well-informed financial planning. 

Additionally, MRR gives important information about customer acquisition and churn rate by reflecting a company’s capacity to draw in, hold on to, and grow its clientele. While a steadily increasing MRR might be associated with long-term success, it’s essential to note that it could also indicate other factors influencing customer satisfaction and corporate health.

Inaccurate MRR calculations in SaaS organizations can result from a number of typical errors. The errors identified were: 

• not considering discounts and trial memberships
• not incorporating one-time payments
• not standardizing annual subscriptions to monthly costs. 

Setup costs and onboarding charges are examples of one-time payments that should not be included in MRR since they are not considered recurring revenue. 

To ensure proper representation in the MRR, annual subscriptions must be divided by 12 to determine their monthly equivalent. MRR is also impacted by discounts and trial subscriptions; make sure to account for their influence to prevent errors in your estimates.

Different forms of MRR are used by SaaS organizations to examine growth potential, client engagement, and revenue trends. These consist of Churn MRR, Reactivation MRR, Contraction MRR, Expansion MRR, and New MRR.

• Revenue from recently acquired clients is represented by the new MRR, which shows how well the business is able to draw in new clients.
• Expansion MRR reflects revenue growth from existing clients upgrading their plans or adding services, potentially indicating customer satisfaction and upselling opportunities without guaranteeing success.
• Contraction MRR indicates opportunities for improvement in customer satisfaction and retention by showing lost revenue as a result of downgraded plans or customer churn.
• Reactivation MRR shows the company’s capacity to regain lost consumers by capturing revenue from customers who previously left but have now returned.
• Revenue lost as a result of client cancellations is represented by churn MRR, which highlights areas in which the business should concentrate on retencję tactics.

SaaS organizations may learn a lot about their revenue dynamics, customer behavior, and growth potential by monitoring these various forms of MRR. They can use this information to make well-informed decisions regarding marketing plans, client retention programs, and rozwój produktu.

It is crucial to remember that to give a thorough picture of a company’s overall financial health and growth trajectory, MRR measurements should be examined in combination with other financial measures and customer data.