The software-as-a-service (SAAS) model lends itself to focussing on increasing monthly recurring revenue (MRR) as a way to increase overall revenue.
SaaS founders just like you are constantly searching for new and innovative ways to increase their MRR. Tracking MRR is a great indicator of your overall growth. It helps you understand the momentum at which your startup is growing
In this ebook we’re going to show you 7 strategies you can implement to increase your own MRR.
What is MRR and how do you calculate it?
Your Monthly Recurring Revenue (MRR) is all of your recurring revenue calculated as one monthly amount. For SaaS companies, whose entire existing is run by recurring income, this metric is crucial.
At a top level, if you want to calculate your current MRR use the following calculation.
MRR = Number of customers * average billed amount.
Let’s look at this in real terms.
100 paying customers with an average of $50 would mean an MRR of $5000
$500 = 100 * $50
Naturally, it seems, the two core ways to increase your MRR are to increase the number of customers you have or increase the average amount you charge your customers. However, there are other, exciting ways you can increase your MRR.
Let’s dive in.
Increase your price to increase MRR
Not enough SaaS companies spend a significant amount of time thinking about their price. Taking arbitrary numbers of out thin air isn’t enough and often leads to you undercharging your customers for a service they’d happily pay 2 or 3x more for.
Close.io increased their prices but had three clear goals in mind. They wanted to keep their current customers happy, keep their conversion rates as they currently are and use the price increase into an opportunity to sell more.
Some tips Close.io used was to let their customers know early about the price increase. This can be done through announcing the updates to your customers via a blog post or personalized email. Be sure to get to the point. Don’t apologise about the price increase, but explain:
- What is the price increase?
- How will the price increase affect your current customer?
- Ask if any customers have any questions.
Here’s an example of the email they sent to their customers.
So how did this affect their profits and MRR?
Well, they were able to keep their conversion rates the same, their current customers were happy with their product and therefore happy with the increase. They had a huge increase in paid seats and their average customer lifetime value (CLTV) increased by 10%.
So why not see if you can increase your prices. Note, that increasing your prices will cause some churn. Some customers, who are used to your current pricing model might leave given the price increase, but incremental price increases will lead to higher revenue. If you increase at the right rate, you’ll be able to mitigate the marginal increase in customer churn by the increase in MRR.
Find your differentiating factor and focus on retention
The SaaS industry is saturated which means if you really want to increase your MRR, you have to find a way to be different, That could by being the cheapears, biggest or most innovative. Standing out will help you find your own voice and use that to your advantage to increase your pricing, as we mentioned earlier.
At the end of the day, if you want to increase your MRR, you need to keep your current customers. Meaning, the fewer paying customers you have, the lower your MRR will be.
In order to do this, you need to nurture the customers you currently have. They are you lifeblood and control the revenue you’re currently generating.
In order to do this, though, you need to identify your value matric. Your value metric is what will set you apart, help you grow and stay consistent as a SaaS company.
Wistia are a great example of having a great value metric. Their pricing page is known to be one of the best in the industry.
Wistia has a range of different tiers. But imagine, for a second, if they only had three tiers and everyone had unlimited bandwidth and videos? Some people wouldn’t use a lot of videos whereas other larger companies might demand more from the service, yet be paying the same price.
Your value metric define what and how you’re charging your customers. For example, Sherpadesk, a help desk software will charges for eat seat per month.
So for Wistia, they charge for the number of videos a customer has hosted on their platform.
For your SaaS company, you need to find your own value metric. If you want to increase your MRR by finding and solidifying your value metric, you should come up with a list of all the different axes you can charge for. Next send a survey to your current customers to see where they find their most value.
Armed with this data, you’ll be able to successfully understand the value your customers get from your product and how you can differentiate yourself by defining your value metric.
So if you want to increase your MRR, find what makes you different and double down on that.
Move from SMB to enterprise
If you’re selling a product, in many cases, you’ll be looking at selling to either the SMB market or enterprise. Enterprise clients, naturally, are worth more to you. Larger businesses are happy to pay more for your services, so it’s worthwhile, if you’re not already to add enterprise packages to showcase the value you already offer.
But remember, enterprise clients will have different needs to SMBs or startups so make sure your solution already solves the problems they have if you want to appeal to them.
Advice from Zendesk’s former COO was that enterprise customers add further stress on any organization. Because they’re paying more money, they had much higher expectations.
However with that said, they’re more willing to pay for premium services as well as support.
When Zendesk offered their product to enterprise clients, they found their best results were when they offered technical account management to enterprise clients.
This personalized approach meant that their enterprise clients felt well looked after and therefore your customer retention will increase.
So consider if you haven’t already, expanding into the enterprise market. When you do, though, your pricing needs to reflect that. The value an enterprise client would get from your product should be reflected by the revenue you get in return.
Increase MRR through inbound marketing
If you want to increase your MRR and attract new customers consider using inbound marketing. It helps you increase the number of customers who come through the door and in turn, increases your MRR. Remember, top level MRR is calculated by the number of customers times by the average subscription cost.
For example, Bizible was able to increase their their MRR to $15k just through their blog.
Their approach to growth was a content first approach. Their first step was to keep the quality of their content high and stay patient. Remember, the effects of content marketing are compound and results increase over time.
Blogging, or inbound marketing is a completely scalable strategy if you approach it in the right way and put in enough time and effort to make it work.
You can see Bizible’s MRR growth from their blog from the years 2014 to 2016.
Their organic traffic increased because they made a conscious effort to improve the quality of content they were producing. This was because they focused on content that could be downloaded. Meaning customers had to hand over their details in order to access the content.
In order for this to work though, the content has to be high-quality and provide enough value. Bizible tracked their downloads and used that data to find new opportunities to create revenue.
When it comes to the kind of content you should be creating for your SaaS company think about it in these ways:
- Why do your thoughts matter? Why should a reader care about what you’re writing.
- Show best class examples. You want to make your customers (and potential customers successful by using your product so consider what makes them successful and write content around that
- New services or products: If you’re creating new features, you need to let your customers know. Don’t rely on them to simply work it out for themselves. Find a way to creatively tell them about the new service and how it will impact their lives.
- Offer guides. As we stated earlier, you want your customers to become successful, so create guides to help them solve their problems and gain insights.
But remember, inbound marketing effects come into fruition in a compound way, building growth month on month, the same way you expect your SaaS company MRR to grow. Although inbound marketing results takes longer to come into fruition it yields the highest ROI.
Don’t be afraid of changing your product
The MVP you use to attract your initial customers may be wildly different from the end product you send out to mass-market. Despite that, if you want to increase your MRR, don’t be afraid of changing your product to better serve the current customers you have.
As your SaaS company grows, you’ll need to innovate your product so that all your customers are best served. This might mean adding new features to your roadmap, or perhaps even changing your product completely.
Mention, were able to increase their MRR by 3X in less than a year by changing their product. When they first started to target SMEs they realised they needed to find new value for their customers.
To do this, they conducted a range of customer interviews, surveys and NPS analysis that helped them get a better understanding of what their SME customers wanted.
Their results showed they needed to ship three core things:
- Analytics. Their SME customers were obsessed to data analysis, they wanted to know what their users were doing and why. Therefore they revamped their analytical panel to make it easier for their SME customers lives.
- Their customers identified they wanted better notifications. Before, on their platform each alert would have its own email. This was ineffective when a customer would have 40-50 alerts all at once. Instead, they send only one notification email.
- They highlight the important mentions. Their SME customers wanted to know which mentions were most important and where they should focus their efforts. They therefore added an influencer score that provided information on how much influence a user had.
The results? Mention were able to increase their MRR by attracting a new type of audience and were subsequently able to retain these customers by creating products that meant the most to them.
Upselling and unbundling
Although the SaaS model lends itself to recurring costs, there are still ways to increase your MRR by unbundling some of your features. By offering add-ons to your customers, you can increase your MRR by offering add-ons to your current customers.
This works effectively well for customers who may not have need for the higher tiered package, but still want a few of the feature available for higher tiered customers.
Canva, a SaaS creative design company use unbundling for their customers. While you can make use of their free service.
In their free service, customers can make use of a range of features to create the perfect graphic for a range of uses.
They can also upgrade their service to their paid monthly or yearly service. The service costs $12.95 per month, or $119.40 paid annually.
When you’ve signed up for their premium service, you can make use of extra features such as adding transparent backgrounds or using teir illustrations.
Despite this, they also offer a number of paid illustrations that you need to pay more for, despite whether you’ve upgraded or not. This cost is usually $1 per image.
This is perfect because there may be some customers who are perfectly happy with all of the free features you have, but want to make use of the paid illustrations without having to pay a premium.
This method works effectively well when you reach out to customers who are about to hit an specific milestone and are more likely to make a purchase.
Wrap it up
As a SaaS owner, you are constantly trying to find way to increase your MRR and therefore your overall profit.
In this ebook we’ve looked at a number of different strategies you can implement to increase your MRR
See if you can implement any of these strategies to your SaaS company and watch your MRR soar.