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What is MRR?
September 07, 2021
man-shopping-online
What is MRR?
September 07, 2021

Short for Monthly Recurring Revenue, MRR is a critical sales metric popular with online retailers and SaaS companies. It helps eCommerce companies average pricing plans and billing periods into a consistent and trackable figure.

MRR helps online companies track monthly revenue generation to understand their market positions better. It also helps them compare trends, sign-up rates, account growth, churn rate, and more.

 

What does it mean for businesses?

With more than 2.1 million online retailers, the United States is the online shopping capital of the world. These companies depend on recurring revenue to stay competitive and continue their operations. Without exceptions, they normalize their recurring revenue into a monthly figure – MRR.

At first glance, MRR is easy to calculate – it’s a product of active customers and the average billed amount. If you have 100 customers paying your $50 each month, your MRR would be $5,000. However, this paints the business in broad strokes.

To get a clear picture of business performance, retailers must use nuanced data to generate deeper insights. That often entails breaking down the MRR into its five components:

  • New MRR – Revenue from new customers
  • Expansion MRR – Revenue from customer upgrades
  • Reactivation MRR – Revenue from returning customers
  • Contraction MRR – Revenue lost due to downgrades
  • Churn MRR – Revenue lost due to cancellations

These metrics provide deeper insights into business performance and answers the “why”. They get to see, understand, and explain any MRR variations.

 

Why is it important?

Measuring the MRR is the financial equivalent of a SWOT analysis. They help vendors take corrective measures and grow revenue. Vendors then devise ways to play up their strengths, minimize churn and downgrades, increase upsells, and minimize threats. They can: 

  • Market their top sellers more aggressively
  • Segment the target audience
  • Identify the most converting offers
  • Run more promotions
  • Introduce more products and services

All these actions will help the company generate more revenue, but what do they mean for you, the customer?

 

What does it mean for individuals?

At a personal level, MRR represents monthly income from your job or business ventures. It’s the total amount of money you expect to make within any given month. The figure might be reasonably consistent and predictable for salaried individuals, but business income might vary significantly.

Creating a budget paints a clearer picture and offers deep insights into your spending habits. It helps to break your expenses into distinct categories as it shows where the bulk of your money goes.

As a consumer, all your favorite online stores have designs on your money. They are out to get a share of your MRR so they can grow theirs and reach their financial goals. And so it begins, a concerted effort to get you to spend more of your hard-earned dollars. It shapes up as email marketing campaigns with promotions, offers, discounts, and subscriptions services.

While helpful, subscription services can be a minefield for online shoppers. For starters, they’re highly addictive but primarily because of the cashless effect. Subscriptions reduce transactions to a few clicks of a button. It eliminates the physiological pain associated with spending cash, making it easier to splurge.

 

Why is it important?

The average American family carries $6,270 in credit card debt. Of greater concern is that 40% of Americans live paycheck to paycheck and can’t meet a $400 emergency. Such insights highlight the need to protect and safeguard your income or MRR.

Subscriptions encourage impulse buying by making shopping a painless experience while guilting you to buy more. In this scenario, shopping amounts to helping the businesses grow their MRR at a high personal cost. It puts you in a position whereby paying off debts takes precedence over building personal finances.

Wanton spending lowers your ability to build cash reserves, save for retirement, and destroys your credit score. It makes you reliant on high-interest loans for survival, further depleting your dwindling income.

 

Conclusion?

Preserve your income.

Online retailers are out to get your money, and they go to great lengths to get you to spend more. Seize back control and build your cash reserves by lowering your monthly spending. Cutting down on online shopping and minimizing the use of credit cards is an excellent start. Trimming down your subscription services lowers the number of tempting offers in your inbox. It is easier to reduce your spending if you’re not constantly bombarded with irresistible offers.

A subscription management solution lets you reevaluate your subscriptions services and keep the beneficial ones. OK Subscribe helps escape those enticing sales messages that have you reaching for your credit card.

 

     


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