Recurring Revenue Analytics
Existing customers make up 65% of your overall profit. The revenue they generate each month by paying for their subscriptions is much more important than the one-time purchases made by new customers. It’s also more sustainable: the only thing you need to keep your 65% is to make sure that you’re good with customer retention.
The revenue that your customers repeatedly generate over time is called Recurring Revenue. To ensure financial stability, track customer loyalty and optimize marketing channels’ performances, you should be using Recurring Revenue Analytics, which is an essential part of SaaS analytics. Keep reading to learn more!
What Is Recurring Revenue Analytics?
Each month, your SaaS company will expect a certain amount of income. SaaS is based on periodic subscriptions, be it monthly or yearly, and customers bring in money each time day renew their subscriptions. This revenue that’s expected to continue periodically is called Recurring Revenue. Recurring Revenue Analytics compares your income to your expected revenue, looking at increases/decreases, and measuring the effects of upgrades, downgrades, and churn.
So, Recurring Revenue Analytics doesn’t only involve measuring your repeat income. It also requires tracking various important marketing metrics such as Churn and LTV and optimizing different sources of income to increase recurring revenue.
Revenue by Channel
The audience of each marketing channel is different, and so are their budgets and needs. Some channels will inevitably reach more high-value customers, especially if those customers fit into your ideal customer profile. It’s your (and your marketing team’s) job to determine the high-value channels and make sure that you advertise to those viewers’ wants and needs. You can win those leads and turn them into repeat customers, who bring in recurring revenue. On the other hand, it’s also your responsibility to understand why specific channels aren’t contributing to your recurring revenue and decide whether they’re worth your time and effort.
Blog Posts That Drive Revenue
Just like your different marketing channels, your blog posts will reach different audiences. Or, if you’re underperforming, they won’t reach anyone you intended them to reach. Not all blog posts will impact your recurring revenue in the same way, as can be seen in the varying MRR numbers on the dashboard.
To see if your posts reached qualified leads, analyze the signups, expansions, and MRR from each one. If a specific topic like inbound marketing performs better than others, you should write more on that topic. Or, if your posts are consistently getting low MRR, you should switch content marketing strategies.
Sources That Drive Revenue
You won’t be posting the same kind of content on every channel. While blog posts drive Revenue from Google, your short tweets and infographics will drive revenue from Twitter. To see which type of content and traffic source is performing better (and contributing the most to your MRR), you can use HockeyStack’s customizable dashboards.
Churn by Referrer
You need to understand where you’re losing customers to optimize your recurring revenue. You can determine the profiles of churning customers based on the sources that they came from. For instance, customers that had come from Google seem to be churning the most in this dashboard, meaning that the company is struggling to keep customers that had been interested in blog posts and web content. Piecing together this type of information will reveal new areas of improvement.
Churn by Blog Post
Like analyzing Churn by the referrer, analyzing Churn by blog posts will tell you about the types of customers you’re losing. If you’re losing customers from your inbound marketing tools post, think about why that might be the case. Maybe these profiles were looking for features that they would use for their inbound marketing efforts, and they couldn’t find what they were searching for in your tools.
Top Recurring Revenue Analytics Metrics
What is MRR?
Probably the most direct Recurring Revenue metric, MRR is short for Monthly Recurring Revenue. It’s the total revenue generated by your active subscriptions in a month, excluding one-time fees.
To calculate this metric, you need to find your ARPU (which I mention below) and multiply that number by the number of active subscribers you had in that particular month. If your business uses annual plans, you would divide the yearly price by twelve and multiply the result by the number of customers.
How is MRR useful?
Other than giving you your monthly revenue, you can use MRR to,
- Analyze the financial standing of your business,
- Make predictions about your future revenue and adjust your budget accordingly,
- And look at the revenue generated by upgrades and downgrades via Upgrade and Downgrade MRR.
Revenue Growth Rate
What is Revenue Growth Rate?
A metric that’s especially important for startups, the Revenue Growth Rate, tells you about the percent increase in your revenue over a month. It’s an indicator of growth but should be used together with Churn to give accurate results. This is because high rates of Churn, if left unchecked, will cancel out the increasing revenue. This will then get your business in a cycle of acquiring new customers to replace the lost revenue, which you’ll do in an attempt to increase Revenue Growth Rates.
To calculate your Revenue Growth Rate, calculate the difference between your initial and final revenue over two months. Then, divide this difference by the initial revenue and multiply by 100. So, if you got $2000 in April and $3000 in May, your Revenue Growth Rate would be ($3000 – $2000)/ $2000 x100.
How is the Revenue Growth Rate useful?
As I’ve mentioned, this metric is a good indicator for startups as it shows whether the new products are finding more customers as you advertise them more and more. It indicates whether the demand for the products is increasing or decreasing, which makes this metric important for investors.
Established companies will also benefit from using this metric: after changing their marketing strategies or products, they may see if this positively impacted their sales and growth by analyzing Revenue Growth Rates.
What is LTV?
LTV stands for Lifetime Value, which measures the contribution of a customer to your recurring revenue. Don’t confuse LTV with CLV: LTV looks at an average customer and is an aggregate metric, but CLV (Customer Lifetime Value) is calculated for each customer separately.
There are two calculations that you can use to find LTV. You could either multiply your ARPU with Customer Lifetime or divide ARPU by User Churn. The second calculation is used more often than the first.
HockeyStack will perform the LTV calculation for you! See for yourself by using the customizable dashboards now 🙂
Why is LTV important?
There are multiple reasons why LTV is a useful metric. These are:
- Predictability: a high LTV means that your customers are satisfied with your products, making them more likely to buy in the future. So, tracking your LTV will let you predict the stability of your recurring revenue.
- Customer Profile Analysis: sometimes, the problem is not with your product but with who you’re selling the product to. If you’ve targeted your ads to the wrong profile, you may be generating less ARPU and a lower LTV than you could’ve been.
- Budget Adjustment: by analyzing and determining the LTV of each customer segment, you can also decide on the budget you’ll dedicate to them. If the CAC of a segment is higher than its LTV, then it’s best to let go of that segment and focus on more valuable ones.
What is ARPU?
While it may not be the most valuable metric by itself, ARPU, or Average Revenue Per User, is an important metric that you should use in LTV, MRR, and other metrics’ calculations. To calculate this metric, divide your total revenue by the number of customers you have. Obviously, this metric doesn’t address the fact that customers may bring in revenue in ranging amounts and that they may have very different CLVs. However, since this metric is seldom used on its own, this is not very important.
Why is ARPU useful?
Besides being useful in MRR and LTV calculations, ARPU can also be useful while calculating the number of customers a company needs to achieve a revenue goal. However, the result may not be very accurate.
Recurring Revenue Analytics is easy, especially if you’re using the right metrics and the right analytics dashboards. Once you’ve started to track your recurring revenue consistently, you’ll be able to detect fluctuations and prevent them from happening. As a startup, you’ll secure your budget, and as an established company, you’ll be able to work on increasing your revenue.
ARR is short for Annual Recurring Revenue: it’s one of the metrics used by SaaS companies to track their recurring revenues.
Recurring revenue is important because companies won’t have financial stability and replenishing budgets for marketing and products without it. It’s also essential as it indicates customer satisfaction and loyalty.