7 ways to increase monthly recurring revenue backed by real life examples
Monthly recurring revenue is critical for a SaaS software firm. I get it, and you want to increase your monthly recurring revenue.
But let’s face it, you are inundated with tons of information and don’t know where to start. Or maybe you have not sought out any information, and you are only starting to search now. Regardless, you stumbled on the right article!
Many up and coming SaaS companies and businesses struggle to maintain their monthly recurring revenue, let alone increase it, so your problem is not uncommon, but just a business reality, especially in these times.Â
It is common for SaaS companies to have a churn rate of 5-7%, according to Baremetrics, but if you are getting more than this and your revenue is sinking, you’re going to have to fix this immediately or face the music.
Before we begin, it is crucial to distinguish between the loss in revenue and a loss in users. If you lose users, but your revenue is still up because of your higher paying customers, you are good to go. So it is important to understand this concept, but you probably already knew that.
This article aims to show you seven ways to increase your monthly recurring revenue based on real-life examples so that you can improve your business in a tangible, realistic way. Letâ€™s get started!
1. Split features of your product and offer separate payment options for each.
This is an excellent method that I’m sure many SaaS owners and business owners have heard of, but donâ€™t always implement due to fear of loss. As mentioned in the introduction of this article, a loss in revenue is far more severe than a loss in users when it comes to your monthly churn rate.
So if you have fewer users, but they pay higher, you are good to go. But how do you do this?
Split your features, and offer separate pricing for each.
Letâ€™s face it, some customers will not like this, and this will prompt them to search for another product that offers the complete package in one software. But hereâ€™s the reality: you will make more monthly recurring revenue in the long run, lose customers who donâ€™t want to pay, keep the ones who want to pay, and have the money to do so.Â
This may feel like the wrong thing to do. Still, it is the right thing to do for your business, as a critical component of success in business comes down to weeding out the people who arenâ€™t serious at all about your product, and instead focusing on the ones who are, and ideally also have a lot of money to spend.
The more you split your features and create multiple products, the chances are higher that your customer will upgrade.
So whatâ€™s an example of this?
One example is Adobe. They have such a wide variety of media creation products, but what they do is offer different pricing based on what products you are bundling together. The person who is a photographer, for example, may opt to just pay $19.99 per month at first, but then as they are moving ahead in their career.
They may realize that they will need to create more intricate illustrations and videos with effects. When that happens, they are more likely to find a combination of other software then.
Another company that does this is Split. You can see on their pricing options that the customer can opt to get even more features and a custom plan, but they will have to work out a new price.
This company understands that if their customers’ business grows past their software’s utility, they can adapt to their needs and make more money in the long run.
2. Be careful with free trials.
This is another important concept to understand when it comes to your business.
Finding the right customers, who have the money to pay for your product is crucial, but an often overlooked concept is the idea of managing expectations. Yes, moving the freeline will attract customers into your business, but donâ€™t go too far.
So what do I mean exactly?
An example of what may not be useful for your SaaS is offering a version of your free software forever, otherwise known as Freemium. This can be problematic in the world of SaaS, as it may serve the complete needs of that particular user initially, thus leading to minimal incentive to purchase a premium version of your product.
You also need to keep in mind the method in which you are marketing to your free trial users. Are you limiting the features of your free trial and encouraging the purchase of a subscription? Maybe you offer all features, but are you offering a reasonable time limit, such as 7-14 days? There needs to be an enticing reason to get off the free trial and subscribe, and you need to remind your customer.
Another aspect you need to consider is if your product can deliver during the free trial. According to Wayne Mulligan of Crowdability, â€œDo not offer a free trial when your customer canâ€™t get a complete picture of how your product benefits them during a reasonable free trial period.â€Â
Ahrefs is an excellent example of a SaaS company that gets this concept. They offer a free trial, but if you look at some of their products bundled into their software, they can deliver what they claim to do almost instantly. An example is Site Explorer, which gives competitive research. This product delivers instantly, all within the seven-day free trial.Â
Model after them. Ask yourself, â€˜â€™Is there a way to make my SaaS software, like Matrix Marketing Group and SharpSpring, deliver results instantly in some way? Are there features that I can adjust to make this happen?â€™â€™. According to a study conducted by Marketing Sherpa, when converting your leads, keep in mind the average lead conversion rate for SaaS companies, which is around 7%.Â
We may see many SaaS businesses offering a free trial, and some may get into a herd mentality that this is what successful businesses do, but you have to do this correctly, not just do it. If you apply this principle correctly, you will likely see an increase in your MRR, and reduce your churn rate. When customers trust in your service and get the results they want, the choice to stay becomes more likely.
3. Offer upsells, even in Premium with monthly recurring revenue
I know what youâ€™re thinking…
â€˜â€™Doesnâ€™t that make me money hungry? Wouldnâ€™t that annoy my customers?â€™â€™. The answer could be yes to both, but there are different ways of viewing this situation.
You have to face the reality that you need money to keep your business afloat, and that upsells, and consistent income is crucial for your subscription model to work. Again, Ahrefs is a prime example of this on their pricing page.Â
Look at it this way: If you offer a lot of value, itâ€™s ok, youâ€™re just asking, and they have the choice to say no or opt-out.
And to the other point about annoying customers, you will annoy some, but they are likely the ones who are not fully bought into your product anyways. You want to weed out people who are on the fence, and indeed find your tribe of people who love your product, and are willing to pay a lot for it.
4. Raise your prices but in an effective way.
This may seem obvious, but it often is avoided due to fear of loss.
An excellent way to look at this situation is through realizing the value you are bringing. If you are continually updating your product, listening to your customer feedback, and in general striving to make your product better, you can and should raise your prices.
This may upset some users, and some will unsubscribe. But the reality is you need to separate the real customers from the pretenders.Â
An example of this is when Appcues increased their prices. They claimed to have raised their revenues by 263%, and they did so by notifying their customers in advance, through an email showing the coming changes. This method’s critical components are experimenting with your pricing based on profit margins and notifying your customers in advance of the changes (usually a month before).Â
You also need to consider doing calculated risks when price testing. Appcues explains on their blog that you shouldn’t impact your existing paying customers through experimenting, but what you should do is test pricing on new customers and influence those prices through feedback from your existing customers.Â
5. Plug the holes: Increase your monthly recurring revenue by understanding the real reasons why your customers are leaving.Â
This is a strategic move that every business and SaaS should already be doing, and doing so in a tactical way.
You want to do exit surveys, but you also need to go the extra mile in two ways. 1) Have excellent customer service, and 2) Do personalized follow-ups initially and after cancelation, if it happens.
Weâ€™ve all heard about how important customer service is, but it is more of a nice saying than something companies do. According to Twilio, they found that 90% of their respondents favor using messaging, but as many as 52% of businesses do not have the software to do so.
You also need to keep in mind that your customer relationships are sensitive. 80% of respondents to a survey conducted by Hubspot, reported that they stopped purchasing from a business due to poor customer service or a miserable experience.
The second aspect that many businesses and SaaS owners overlook is personalizing their follow-ups, and when I say personalize, I donâ€™t mean just addressing them by their name.
An excellent example of a personalized follow-up is what CEO of Pigeon, Pat Walls does. He claims that he gets better information from his customers who cancel because he builds a relationship beforehand. He does this by sending a personalized video message to every new free trial sign-up, saying thank you, and welcoming them.
Through this method, if they end up canceling, they are more likely to respond to questions about why they are leaving. He sends a follow-up email and notifies the person that it is not an automated email, but a real one is genuinely asking why they canceled. This is yet another technique that many business owners should implement, especially in these hard economic times.
6. Offer yearly payment options
This is another important way to improve your MRR that more and more SaaS companies are coming to realize works.
The key to this method is emphasizing a yearly subscription over just a monthly payment. Many companies will give discounts on the monthly price, and they do this to encourage paying a bulk amount upfront.
According to a study done by Profitwell entitled â€˜â€™The World’s Largest Study on SaaS Churnâ€™â€™, they found that companies with higher Average revenues per user (ARPU), tend to have a lower churn rate. Patrick Campbell explains that his study found ARPUâ€™s that are of a high amount, $500, for example, see a churn rate of around 2-6%, compared to 3-16% for ARPUâ€™s that are under $100.
This is likely because of the high investment these types of users initially commit to, and extra perks with higher upfront investment. The higher the investment, the more likely they are to be serious customers willing and able to pay. It plays into the commitment and consistency principle that Robert Cialidini talks about in his book Influence: The Psychology of Persuasion.
7. Win at the comparison testÂ for your monthly recurring revenue
This is more of a big picture concept, and it is crucial for increasing your monthly recurring revenue.
You will have to take a good hard look at your business, and question how it stacks up compared to others. What is it that potential customers in your market genuinely care about? If you can be good or the best in a category your customers care about, you can dominate with those people.
This is taken directly from ahrefs CMO Tim Soulo, from an article he wrote on Entrepreneurs Handbook.
He explains the process that ahrefs went through to stand out in a crowded field of SEO tools, and it comes down to the concept of winning the â€˜â€™comparison testâ€™â€™.Â
Things to consider are the functionalities, the UI/UX, how easy it is to learn your software, the price, integrations available, etc…Â
You will dominate in all these categories in an ideal situation, but to start, just focus on one and then move forward. Ideally, focus on a genuinely crucial aspect, like the quality of data or the learning curve. According to Tim, in his article, this is precisely what ahrefs did when they realized they werenâ€™t growing and getting outcompeted.
Hi, I’m Ryan from HigherDesireCopywriter.com! I write engaging and converting content for B2B SaaS companies. I do blog posts, general website copy, and make engaging content that can indeed draw your readers into your B2B software, and increase your results!Â
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General FAQs for Monthly recurring revenue
What is monthly recurring revenue?
Monthly recurring revenue (MRR) is income that a business can count on receiving every month – a predictable revenue. To calculate your monthly recurring revenue, you multiply your total number of paying users by the average revenue per user (ARPU).
What is a SaaS company?
A SaaS company is a company that hosts an application and makes it available to customers over the Internet. SaaS stands for Software as a Service. SaaS infers that the software sits on a SaaS company’s server while the user accesses it remotely.
What is monthly recurring revenue important?
MRR stands for Monthly Recurring Revenue, which measures the total amount of predictable revenue that a company expects monthly. MRR an important figure for tracking monthly revenue figures and understand the month-to-month differences in your subscription service.
What is SaaS software?
What is SaaS? Software as a service (or SaaS) is a way of delivering applications over the Internet—as a service. Instead of installing and maintaining software, you access it via the Internet, freeing yourself from complex software and hardware management.