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YGTMedia Recurring Revenue Strategy

Writer's picture: John ParsonsJohn Parsons

YGTMedia Blog - Recurring Revenue

Why is the Monthly Recurring Revenue Metric Important?

Monthly Recurring Revenue (MMR) is one of the most important metrics for financial growth, and it is just as important for management as it is to individual salespeople. Other important metrics include salespeople productivity, customer retention, average sales price, and growth rate, but at the end of the day, MRR shows the amount of monthly recurring revenue that your customers are willing to pay for your products or services. Investors judge the performance of companies and their teams, divisions, and individuals based on MRR. It is the foundational metric for examining salespeople and team performance.


Budgeting

It is challenging to run a successful business if there is no steady income stream. Monthly recurring revenue tells you how much money can be reinvested each month. The revenue you’re bringing in is one of the deciding factors when determining whether you can run a lead generation campaign or hire more business development representatives for the next month. If you’re experiencing

cash flow disruptions and struggling to make a profit, you can identify MRR trends over a specific time period that might indicate financial trouble.


On the other hand, if your monthly recurring revenue is going up, the MRR metric can motivate your sales team – as they close high MRR deals and build momentum, they will be much more engaged in their roles.


Tracking individual, team, and division performance

With MRR, salespeople can see the size of the deals and accounts they manage. If your company is struggling to hit the MRR quota from month to month, you should take a closer look at the deals with high monthly recurring revenue that you’ve closed. Are there any similarities among the customers? Was there anything specific that you did throughout the sales cycle that impacted the sale positively? By focusing on these details, you could modify your sales approach to start closing higher MRR deals.


Besides the individual performance of sales reps, business leaders, and sales managers can look at the big picture to see how the division is performing as a whole. By calculating MRR, the sales department can make more precise sales projections and forecasts, which helps the sales team plan for short-term and long-term growth. MRR can be calculated in two ways: determining the monthly recurring revenue per customer or using the average revenue per user (ARPU).


Customers Love the Business Model

It is easy to retain customers who love businesses that make things convenient for them; a subscription-based business model offers that. Besides the recurring revenue for your company, this business model offers convenience to your customers, such as:


  • No more anxiety about running out of supplies or losing service due to missing payments (thanks to an automated billing system)

  • No more need for repeat shopping thanks to automatic delivery of products/services thanks to a predictable monthly fee, budgeting becomes more manageable for Customers


More businesses are adopting the Recurring Revenue Model in order to generate a steady stream of income over a longer period of time. Instead of one-off payments, which are the norm under non-recurring revenue models, customers will pay smaller amounts on a monthly or quarterly basis for an indeterminate amount of time.


The Recurring Revenue Model is popular in the software sector, where SaaS companies charge customers for services over longer periods, but other industries are now adopting this business model. Here are six benefits that you need to know about.


1. Predictability

Under non-recurring revenue models, business sales can fluctuate throughout the year. Sales might be higher in the run-up to the holiday season, for example, and then drop off in the new year. This makes it difficult for many businesses to balance their books. The unpredictability of these models means companies are unable to predict future sales and revenue streams with great accuracy.


The Recurring Revenue Model, on the other hand, provides businesses like yours with much more predictability. You will be able to keep revenue steady throughout the year because you receive frequent payments from customers. This makes it easier to scale your business and make accurate predictions about future growth.


2. Profit

It goes without saying that the Recurring Revenue Model generates higher profits than some other financial models because of the continuous stream of income. At first, money generated will be less than a non-recurring revenue model, where customers can pay a lump sum in a one-off payment. However, you could make more money in the long run as you continue to generate profit.


This is just one of the reasons why more businesses are using the Recurring Revenue Model as their primary revenue stream.


3. Scalability

The Recurring Revenue Model is also great for businesses that want to scale their company. As you receive continuous payments over time, you will be able to grow your business and generate even more customers.


Businesses who use the Recurring Revenue Model don't have to worry about revenue when trying to grow their business. As customers continue to pay every month or quarter, they will generate funds as they try to scale their business.


"A classic — and very current — example is Netflix. They succeeded in disrupting the video rental industry in a remarkably short period of time by offering a recurring service for a reasonable price as opposed to Blockbuster’s model of one off video transactions," says Mashable. "Netflix was able to effectively scale out its operations as consumer preferences were shifting from physical to digital offerings in the early 2000s."


4. Customer Retention

Research shows that customers in the Recurring Revenue Model are less likely to "churn" (stop using services from a company after a purchase) than customers in non-recurring revenue models. This is because many customers continue to pay for services over time because it's just easier than finding another company to do a similar thing.


Under the Recurring Revenue Model, companies like yours can keep more of your customers and spend more time nurturing new leads.


5. It's Easier

The Recurring Revenue Model utilises user-based billing — a single payment method that makes it easier for your accounting and financial teams. Instead of using various payment methods, you will be able to collect funds using one source. As a result, various teams in your organisation won't have to deal with all the tasks associated with multiple payment methods.


Using one way to collect funds will also make it easier to track valuable financial data that you can use for future marketing and sales campaigns.


6. Increases Business Value

Companies that use the Recurring Revenue Model have more business value than companies that don't. Research shows that revenue streams for SaaS companies that use this model are twice as valuable as SaaS companies that use nonrecurring revenue models.





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