In most industries, most revenue is collected at the time of purchase. In the SaaS industry, revenue is evenly distributed over a period of time. This revenue, or MRR, is the revenue a company expects to earn each month regularly. MRR can be further broken down into New, Expansion, Churn, and Downgrade MRR to analyze financial growth and productivity in more detail.
Net MRR = New MRR + Expansion MRR - Churned MRR
Key Terms to Know
- Monthly recurring revenue (MRR) - Revenue a company expects to earn monthly.
- Average revenue per user (ARPU) – Revenue generated per user.
- Customer acquisition cost (CAC) - The company's average cost to acquire a customer.
- Customer lifetime value (CLTV) - The total value that a customer brings to the company over their entire time as a customer.
- Churn - The % of customers who leave the company (typically calculated for a month).
Conclusion
SaaS companies are heavily dependent on future revenue. It is, therefore, important to keep track of key metrics as income is spread evenly across a large period of time. To do so, customers need to be analyzed at every step of their journey in the business, be it onboarding or churn.
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