MRR: The Key Metric

There is only one metric that I really care about

Said the tech Saas entrepreneur:

It's MRR - this, plus free cash. But growth in MRR is the key KPI for us

So what is MRR?

MRR = Monthly Recurring Revenue. So the sales (and therefore cash) that are booked to come in every month. Rolling contracts that require the customer to pay every month to keep the services on tap. Think of it like a monthly subscription e.g. Netflix, cable TV, phone contracts etc. It is all the rage.

MRR is valuable for two key reasons:

It provides predictable cashflow to help you scale your business
It builds value in your company for prospective buyers - as they can purchase the future monthly revenue flows

So as your MRR grows, so should your free cashflow and business valuation. Every customer that gets added makes a difference. It is a relatively simple KPI to identify as it may be your only source of income or you would just need to strip out any non-recurring/one-off sales.

On the subject of one-off sales, that is their problem (the clue is in the title). Once you have completed the sale, you're back to square one. You now have to go and seek another new customer. And another. And so on. You are stuck on the hamster-wheel. Constantly chasing your next gig.

MRR, on the other hand, is more like a fly-wheel. You add a customer and it keeps on returning. It is a default repeat sale. Especially when added to an automatic payment collection system - there are tonnes of them out there. Then you add another customer. And another. And it compounds as one builds on the next customer.

You can then add into the mix MMR Expansion. This is where you make your already recurring customers aware of other products or services that you offer. They then bolt these on to their monthly subscriptions. More services = increased MRR.

This is currently one of the best strategies for scaling a valuable fast-growing company. With predictable revenues that increase cashflow and the company valuation every month.

There is one downside to the MRR model to watch out for: that's 'churn'. We'll cover that next time.

Posted from my blog with SteemPress : https://businessn2k.com/mrr-the-key-metric/