When you are in the business of online selling, evaluating its performance is always at the top of your mind. But all the charts, number crunching, and percentages may overwhelm you. Are there are certain metrics that you have to prioritize? Yes, one such metric that needs your attention is MRR.
What is MRR in the e-commerce business?
The monthly recurring revenue (MRR) is a basic yet essential metric that tells you how much income is generated each month. This is of great significance for SaaS (Software as a Service) businesses since they run on a subscription model and the revenues per month reflect their state of business and the growth rate.
A simple way to calculate the monthly recurring revenue (MRR) is to multiply the number of customers with their payment per month. For example, if you have 20 customers paying you $50 per month, your MRR will be $1000.
Another way to calculate MRR is by first calculating the average revenue per account (ARPA). It is the average of how much all of your customers pay divided by the total customers for that month.
Now, to determine the MRR, you multiply ARPA by the total number of customers. So, if the average revenue per account (ARPA) is $45 and you have 20 customers, then your MRR is $900.
One more method to calculate the MRR is to combine the monthly payments of all your customers and multiply it by the number of customers.
So, there are different ways to calculate the MRR. Also, there are different types of MRR.
Let's take a look at which of these solutions is ideal for you to get your Shopify mobile app.
What are the different types of MRR in an e-commerce business?
It is the monthly recurring revenue generated by new customers. Say, you have 20 new customers of which 10 opt for the $10/month plan while the remaining 10 opt for the $20/month plan. The new MRR would be $300.
This is the additional monthly recurring revenue from the existing customers. Since it results from an up-sell or cross-sell, it is also known as upgrade MRR. If 5 of your existing customers upgrade the plan from $20 to $30, the expansion MRR would be $50.
This is the inverse of expansion MRR. It’s the revenue lost when customers downgrade or cancel the subscription plan. So, if two customers cancel their plan of $10, and two more downgrade the plan from $30 to $20, your churn MRR would be $40.
Net New MRR-
The Net New MRR is calculated by using the above three MRR types.
Net New MRR=New MRR + Expansion MRR – Churn MRR
The result indicates if your business is growing or not. If the New MRR and Expansion MRR is less than the Churn MRR, it is obvious that you have to improve your business strategies.
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How to improve the MRR in your e-commerce business?
Now, you know that a higher MRR or a growing MRR means improved business stability. But, how do you manage to keep that number growing? Let’s see-
1. Stay updated with the latest trends in e-commerce
What’s new about this? All online store owners stay up-to-date with the latest trends in SEO or product preferences. But the real catch lies in its implementation. Work on your SEO strategies consistently to increase the volume of visitors to your website. At the same time, work on improving the products to boost the conversion rate.
A simple way may be to see the products that get the minimum sale. Delete those products from your store. Instead, concentrate on those that get high volume. Find new profitable keywords for these products and run ad campaigns to get the better of your competitors. Optimize your online business for better MRR and improve your website SEO at multiple levels.
2. Prompt free users to upgrade
You are busy reading an interesting article on a news website. After you have scrolled the initial paragraph, you get a message “You have reached the end of 3 free articles this month. Subscribe to continue reading”. If a person finds the article interesting, they are not going to hesitate to subscribe to the channel. This is a highly effective upgrade process to get free users to subscribe to the paid model. Once the initial hurdle is crossed, these subscribers will continue paying to read.
Many SaaS business models offer only limited features for free to lure visitors to opt for the paid plans. Offering something for free is a good way of getting visitors to the site, but in terms of direct revenue generation, they don’t achieve a lot.
So, you can always ditch the free plan. But if it is too disruptive, then keep it but focus on the promotion of your paid plans and market them actively.
3. Design tiered step-up plans
Have you ever given a thought to how online video streaming channels design tiered subscription plans for their customers? This way, they are successful in capturing the entire range of interested viewers from people who cannot spend more to those who can afford to pay higher subscription fees. When Netflix entered India, it faced competition from Amazon that was already offering subscription plans at cheaper rates. It offered a one-month free trial, to begin with. With other local entertainment channels also jumping the fray, Netflix had to reduce its subscription fee to accommodate the larger audience that consisted of middle-income level Indians. But it gave a tiered approach to the plans and was thus able to target a broad spectrum of viewers.
4. Unbundle the features
Do not put all the good features in one single package. Try splitting them into separate add-on services. We will tell you why. As long as you provide core features in the plan, an average user will not use all the functionality available in the plan. So you can take out some features and turn them into add-ons. Many will not take them, but a few will be willing to pay for it and this will earn you expansion MRR.
5. Eliminate unlimited features
When you are offering something unlimited to users, you are leaving money on the table. The price of your subscription should increase alongside the value it generates. Unlimited is generally offered as the costliest of your subscription plans in a tiered approach. Do not offer unlimited in the basic plan. You may see it as offering something more than what a customer expects. But, a customer may see it from a different perspective. Instead, offer them value for money in some other way but not at the cost of providing ‘unlimited’.
6. Upsell at the right time using banners and popups
What happens when you have a Netflix subscription for 1 screen and you attempt to watch it from 2 screens at the same time? It gives a message that 1 viewer is already logged in and you have a popup message “Upgrade to two screens for a better viewing experience.” It is an upselling strategy and it is the practice of suggesting a higher-tier subscription when you find a click-bait subscriber.
A big part of increasing MRR is creating a limitation and then offering a solution at the ideal moment.
7. Offer yearly pre-payment
The easiest way to commit customers to a full 12-months subscription is to offer a discounted yearly pre-payment plan instead of monthly fees. Don’t worry about offering discounts. This may still yield a net gain in MRR over the customer’s lifetime.
8. Start a referral program
Give cash compensation or points to existing clients for referring other people to subscribe to your plans. Starting a referral program creates an incentive to customers to turn into brand ambassadors and remain loyal to you through ups and downs. Referrals create growth and higher retention because of the benefits the customers receive from the program.
9. Move upmarket
If your business covers the entire range of spectrum from individuals to enterprises, create plans suited for all. Big businesses are willing to invest in your business solution if it brings in value for them. So always keep an enterprise subscription plan aimed at targeting big businesses. When you are serving big customers, their demands will be completely different from the needs of individuals. So, you need to deliver customized services for them and not necessarily extra features.
10. Create and market content
Believe it or not, a content strategy focused on increasing brand awareness plays the most effective role in increasing MMR. Think of topics and formats that will offer value and benefit to the audience. A post once in 2-3 days across all social media platforms creates a buzz and gets talked about in different niche communities. The results may be slow in the beginning, but gradually the organic search begins to pick up. You can offer visitors trial signups and make sure your landing page is attractive with more visual content.
11.Focus on customer conversion
Even a small increase in the number of customers will have a huge impact on the monthly recurring revenue. So use all the best marketing tactics to convert customers. Use A/B testing for different sales copies, experiment with CTA button placement on the website, use push notifications, create a mobile app, and more.
If you already have a website, you can create a mobile app the easy way using Swipecart. You just need your website URL to build your mobile app from the existing website. It is cheap, fast, and easy. Having a mobile app for your business increases the chances of customer acquisition and retention.
12.Automate customer retention and acquisition strategies
Automate some of the marketing jobs to simplify and give you more time to focus on customers. For example, automate sending welcome emails or discount letters. It supports customers long after their purchase. Yes, test your automated email campaigns but try to segment and automate repetitive tasks that do not require your attention.
In a Nutshell
A monthly recurring revenue (MRR) moving upwards can be a source of motivation for your business. It is a key metric for business planning and decision-making. It tells how much money is coming into the business and how much can be reinvested. Discover opportunities to scale your MRR. It is a true test of your business success.