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11 Easy Growth Strategies to Increase MRR For Your SaaS

Published on February 2nd, 2022

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The SaaS business model has been the talk of the town for some time now. With the potential to expand up to 21.7% in 2022, the popularity of the SaaS business model has gained momentum, and rightly so. This is specifically because of its cost-effectiveness and low barrier to entry.

However, despite being “The Chosen One” (at least for now), many have failed to make it big in the industry. With around 92% of them shutting down operations within 3 years, the odds don’t seem to be in their favor. Significantly few SaaS startups evolve into successful SaaS businesses (out of the 20K+ SaaS companies around the globe, just over 1K have entered the unicorn range, and around 50 are decacorn).

To keep a constant check on what’s working for your SaaS and what’s not and have the scope and ample time to enhance your strategies, you need to be well aware of a key SaaS metric – Monthly Recurring Revenue (MRR). It’s the lifeblood of SaaS, a factor your SaaS will live or die by. And to have a steady SaaS growth curve, you need to keep tabs on your MRR and constantly look for ways to amplify it.

Before we dive into the core topic, let’s start with the basics of MRR.

Understanding MRR for SaaS

To put it simply, it’s a number that helps you summarize all the revenue you receive from your paying customers or the monthly recurring payment your SaaS business earns from subscriptions, a metric that is a crucial KPI for subscription-based companies. 

MRR = {[New business subscriptions + Upgrades (or expansion)] – [Downgrades (or contractions) + Cancelled subscriptions]} * Average billed amount

MRR can be classified further into New MRR, Expansion MRR, Reactivation MRR, Contraction MRR, and Churned MRR, and they can be as important as their parent term. 

A side note: You should always track these MRR separately. They can help you understand your company’s overall growth, whether there was an increase or decrease in the revenue. They ultimately help you define a roadmap to rectify any growth issues beforehand.

But Why Do You Need to Calculate MRR?

Understanding your MRR can help you gain valuable insights into your business and draw revenue-building conclusions. A large part of MRR is consistent (for some companies) and predictable, so with an accurate MRR, you can:

  • Identify critical areas for growth
  • Estimate where you’ll be in a couple of months or EoY
  • Plan your business strategies accordingly (if your numbers are receding, you can jot down and implement strategies to up your game)
  • Calculate growth rates and predict the future value of a customer through Customer Lifetime Value (LTV) 
  • Evaluate trends in the Average Selling Price (ASP)
  • Make a marketing budget responsibly
  • Identify any UX issues if the MRR growth is negative
  • Double down on what’s working for your business and get more out of it

Calculating MRR for SaaS

For SaaS, there are two ways you can assess your business’ Monthly Recurring Revenue: The customer by customer method and the Average Revenue Per Account/ User.

Calculating MRR using the Customer-by-Customer method

This method requires you to add up the monthly fee paid by each customer.

For instance, if Customer A is paying $300, Customer B is paying $200, and Customer C is paying $100 per month, your recurring revenue would be $600. The one problem with this method is that it’s time-consuming, and as your customer base increases and if your SaaS has different pricing plans, it will be quite a task for you to calculate the MRR.

Calculating MRR using the ARPA method

This is a more straightforward and preferable alternative to the customer by customer MRR method. For this, all you need to know is the total number of paying customers and the average amount each customer is paying each month.

MRR = Total paying customers per month * Average revenue per user/account

So, if you have ten paying customers, and on average, each one pays $100 per month. Then your MRR = 10*$100 = $1000.

Types of MRR To Focus On

MRR captures ongoing revenue, and depending on your approach to analytics and your business needs; you can choose to track a variety of MRR types:

  • New MRR: It is the MRR you got from new customers. If by the end of Jan you’ve got a total of 150 customers, out of which 10 were acquired in Jan, and each customer is paying $50 monthly on an average, then your new MRR = $500
  • Expansion MRR: Expansion MRR is the MRR generated from the upgrades or add-on your existing customers signed up. If out of the 150 customers you’ve, 5 of them signed up for a new feature on your platform and ended up paying $20 per month, then your expansion MRR = $100
  • Contraction MRR: The monthly recurring revenue you lose due to cancellations. If out of the 150 customers, 5 downgraded, making you lose $10 per customer per month, then your contraction MRR = $50
  • Reactivation MRR: This is the MRR you get from your long-lost customers, previous customers who have reactivated their subscriptions. If out of the 150 customers, 3 were your previous customers who reactivated their subscription, and each ended up paying $50, then your reactivation MRR = $150
  • Net New MRR: It’s a combination of three MRRs that can change every month.

New MRR (+) Expansion MRR (–) MRR Churn

$500 + $100 – $250 = $350

  • Churned MRR: This is the MRR you lost from cancellations customers. If 5 customers canceled your subscriptions, and you lost $50 per customer per month, then your churned MRR = $250

As a financial benchmark for companies, a median MRR for businesses with $10-25 Average Revenue Per User is $15,700, while that for $25-$50 ARPU is around $17K and so on.

How to Increase MRR for Good?

Owing to its high growth rate, there seems to be less scope to question why people flock to the SaaS business model. Now that you understand what MRR is and how you can calculate it for your SaaS, it’s evident that an increase in MRR will contribute significantly to your business stability and act as a foundation stone for your future business plans. 

But how do you ensure that number goes up? We have prepared a list of 11 growth strategies that you can implement for that:

  1. Quality before everything else
  2. Play around with the SaaS pricing plan
  3. Stay away from the “unlimited” pricing packages
  4. Split your excellent features into separate ad-on
  5. Stay away from discounts
  6. Do free trials strategically
  7. Event-based billing
  8. Automate customer acquisition and retention
  9. Examine your churn rate
  10. Overdeliver your customer experience
  11. Upsell at the right opportunity

saas growth strategies

Growth Strategy #1: Quality before everything else

If your product is valuable to the users and solves some real problems, your MRR will always keep increasing. As a SaaS business, you need to make Quality your USP. The quality of your product will speak for itself and pour in on customers. It will become its proponent, and you will hear the sweet melody– Cha-ching within no time.

Growth Strategy #2: Play Around with the SaaS pricing plan

For users, pricing plays a vital role in signing up for a product, and with most SaaS products being underpriced, it’s wise to try and test a bunch of pricing plan strategies. Here are a few that can help:

  • Increase your prices – which may sound preposterous, but if your product provides value to your customers and solves fundamental pain points, you won’t lose them. So try increasing your prices by 10 or 20% to see if it works for you
  • Avoid the FREE plans – Although they are great for raising awareness for your product, they don’t contribute much to your MRR. So if your product has a free program, ditch that, and if you fear that you will lose your acquired customers, keep the free plan but don’t market it actively. Instead, focus on the promotion of your paid plans. This way, you will keep your existing customers happy and get new ones to sign up for your product
  • Get customers to sign up for a yearly plan – Once your customers have seen and used your product (in the free trial phase), lock them with an annual program by giving them a discount of 5% – 10%. That should do the job.
Growth Strategy #3: Stay away from the “unlimited” pricing packages

It would be best if you avoided the UNLIMITED plans, as it leads to undervaluing your product.

Spend a couple of hours brainstorming on the right pricing strategy and if your product has multiple features, ensure that your prices go up as they opt for those features.

The price of your product should be proportional to the value it generates, so if you offer unlimited storage, users, or additional features, that’s leaving money on the table. And about your customer base, if you’re providing a high-value product and, more importantly, if your customers see that your product saves them time and money, they will see its value.

Growth Strategy #4: Split your awesome features into separate ad-on

As a SaaS product, it’s more than likely that sooner or later, you will add additional features to your product. Even if you don’t, your product will still have features that you can split to create an ad-on. So, instead of grouping everything under a single pricing umbrella, you should opt for a more creative way of offering these features.

This will go well if you’ve got a core service, one without any additional features. Doing so will have a 2-way benefit for your product. You can charge an additional fee for the add-ons (increase in MRR), and you will have more features to offer upgrades for those who’d want them.

Growth Strategy #5: Stay away from discounts

Another strategy around the pricing plan is offering discounts. As a customer, we love deals, but as the one who’s offering them – Not really. Don’t get me wrong! It’s OK to provide a one-time discount to get more customers but making that a habit and thinking you will retain the customers down the line is too much to expect.

It would help if you thought more about the Lifetime Value of your customer than getting more and more signups. So focus more on building and maintaining healthy customer relationships.

Growth Strategy #6: Offer free trials strategically

For SaaS businesses, Free trials are the ultimate strategy that helps them attract customers and build their user base. The goal here is to showcase your product and the value it offers in real-time. A crucial factor here is that your product must deliver tangible results within the set timeframe. 

Usually, SaaS businesses go for a free trial of 7-14 days. You can try this for your initial set of customers and get feedback from them. If your product couldn’t deliver within the period, you can consider offering a more extended free trial or steer clear from offering one at all.

Consider the example of Ahrefs. They also offer a 7-day free trial, and within that period, it gives users in-depth insights into a website—a tangible value within a short period.

Growth Strategy #7: Event-based billing

A reasonably new billing form, event-based billing, is metered billing that charges customers for billable events. In other words, it’s a usage-based or consumption-based billing where customers are charged for the precise amount proportional to their consumption. This strategy can be a boon for the users, especially with the ongoing economic contraction.

Although this form of billing sounds a little sneaky, you can tell your customers beforehand that additional fees will be charged based on the events that occur from their use of the product.

Growth Strategy #8: Automate growth processes

This strategy will help you strike off some mundane tasks on your list, such as sending out a short weekly email to educate your customers about the latest product features or what they can accomplish using them. Automating your growth processes like customer acquisition and retention will help simplify your daily tasks and give you ample time to enhance your business strategy.

Growth Strategy #9: Examine and reduce your churn rate

Conduct a thorough analysis of why your customers are churning; you need to find holes in the leaky bucket to plug corks. But how do you do that?

  • By tracking the important SaaS metrics like bounce rate. This will help you understand at what point your customers are leaving
  • By asking your customers for feedback and recommendations, if any
  • Keep checking analytics to understand how your customers are using your product

Once you understand why your customers are moving away from your product, you can build a strategy with churn rate as the focal point. Here’s what you can do:

  • Personalize every aspect of customer experience
  • The buyer journey doesn’t end with the sale; you have to keep nurturing your leads even after that. Your leads can be your best advocators
  • Have excellent customer support – The idea is simple, if your customers are happy and they feel cherished, they will keep using your product even after minor hiccups
Growth Strategy #10: Overdeliver your customer experience

Providing excellent customer service and prompt support is paramount for the success of SaaS businesses. 

Customer satisfaction has a direct impact on your MRR growth. So you can have an in-house customer support team or recruit a third-party team for this. However, your representatives should be aware of the customer history; they need to have all the valuable data at an arms’ length so they can identify who to and what to pitch.

Growth Strategy #11: Find the right window to upsell

Upselling is just promoting the add-on features of your SaaS product to your customers. For this to work, you need to find the right time to pitch upsell opportunities, for instance, if a user has a complaint or is facing an issue with your product that an upgrade or an add-on can solve. It accomplishes two goals. First, you sell high-priced products to customers who are already paying customers, and second, it maximizes potential revenue from your upselling efforts.

For upsell, all you need to do is have a clear understanding of your customers, which should be a piece of cake if you have all the data ready by your side. You can take it to the next level by developing a drip campaign to target each of your user segments in a personalized manner.

Conclusion

With most SaaS startups leaving a lot of money on the table and some retracting, there’s a good chance for you to outperform and grab the ideal customer you have always desired. As a SaaS company looking to boost their MRR continuously, you need to understand the concept first clearly and what you can do to enhance it to keep the revenue stream flowing. You can try and test the different strategies mentioned above and use analytics and surveys to support you in deciding what will work best for your business.

If you’re a SaaS company on the lookout for a proven partner, let’s have a quick strategy call to help you drive hockey stick growth.

About the Author

Heebatullah

Technical Content Strategist and Inbound Analyst at FirstPrinciples, Heba is a motivated self-starter with a knack for analyzing and solving tough business problems. When not working, you can find her either reading a book, painting landscapes or sketching places she yearns to visit one day.

@Heebatullah

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