Are you a start-up looking to understand the metrics associated with B2B SaaS? In this article, we’ll be exploring the different metrics such as Revenue, MRR (Monthly Recurring Revenue) and Churn Rates that are essential for startups to understand when it comes to their business. We’ll also take a look at how these metrics can help you make better decisions for your business in the long-run!
What is MRR?
- Monthly Recurring Revenue (MRR) is a key performance indicator (KPI) for subscription-based businesses that measures the revenue generated each month from recurring payments from customers. This metric is important to track as it indicates the health of a company’s business model and growth potential.
- To calculate MRR, simply take the total amount of recurring revenue for a given month and divide it by the number of customers at the beginning of that month. For example, if a company has 100 customers paying $10 per month, its MRR would be $1,000 ($10 x 100).
- MRR can be further broken down into new MRR and expansion MRR. New MRR is the monthly recurring revenue generated from new customers or upsells/cross-sells to existing customers. Expansion MRR is the monthly recurring revenue generated from price increases or additional usage/consumption by existing customers.
- Churn rate is another important metric to track alongside MRR, as it measures the percentage of customers who cancel or do not renew their subscription in a given period of time. A high churn rate can offset any gains made through new MRR, so it’s important to keep an eye on both metrics when assessing business health.
- Generally speaking, a company’s goal should be to grow its MRR while keeping churn rates low. By doing so, they can ensure sustainable long-term growth and profitability.
What is Gross Profit Margin and Net Profit Margin?
Gross profit margin is a company’s total revenue minus its cost of goods sold, divided by total revenue, and expressed as a percentage. For example, if a company has $100 in total revenue and its cost of goods sold is $80, then its gross profit margin would be 20%.
Net profit margin is a company’s total revenue minus its total expenses, divided by total revenue, and expressed as a percentage. For example, if a company has $100 in total revenue and its total expenses are $95, then its net profit margin would be 5%.
Why are Churn Rates so Important?
Churn rates are one of the most important metrics for startups because they indicate how well a company is retaining its customers. A high churn rate means that a startup is losing customers at a faster rate than it is acquiring them, which is not sustainable in the long term. Conversely, a low churn rate indicates that a startup is able to keep its customers, which is essential for growth.
There are several factors that can contribute to high churn rates, such as poor customer service, lack of features, or simply a bad product. Startups need to be aware of these factors and work to address them in order to reduce their churn rates.
Investors also closely monitor churn rates when considering whether or not to invest in a startup. They want to see that a company has a solid retention strategy in place and is not bleeding customers. In short, high churn rates are bad for business and should be avoided at all costs.
Breakdown of Revenues
- Breakdown of Revenues
The first metric we’ll look at is revenue, which is the total amount of money that a company has earned in a given period of time. This is typically reported on a monthly or quarterly basis.
There are two main types of revenue: subscription revenue and one-time revenue. Subscription revenue is recurring, which means that it comes in on a regular basis (usually monthly or annually). One-time revenue, on the other hand, is non-recurring and only occurs once.
To get an accurate picture of a company’s financial health, it’s important to look at both types of revenue.
Can a Start Up Substitute MRR with ARR?
Yes, a startup can substitute MRR with ARR, but it’s not advisable. MRR is a more accurate metric of a startup’s health and growth potential because it takes into account the monthly recurring revenue that a startup is bringing in. This is important to track because it allows startups to see whether they are growing at a sustainable rate or not.