Startup Jargon - MRR

MRR (Monthly Recurring Revenue) is a metric which is very important to analyse a business model having recurring revenue like subscription. It helps in understanding how the business is growing and, as the name suggests, what the actual recurring monthly revenue of the business is.

MRR is calculated by converting all revenues of the business into a per month basis. All recurring payments are included and non-recurring payments, tax payments and adhoc charges are not included.

For example,

Recurring Revenue per month - $10,000 per month

Non - Recurring Revenue – $2,000

Recurring Annual Revenue - $60,000 per year = $5,000 per month

Discounts per month - $3,000 per month

MRR = 10,000 + 5,000 – 3,000 = $12,000

Is Your Idea 'Disruptive'?

A question which is asked time and again. To understand this, we need to first understand what 'disruptive' means.

Disruption in any Industry refers to an innovation which questions the current working of the Industry and comes out with a model which creates so much value that it displaces the current one. To be judged disruptive, an innovation must result in the following.

Creation of a Market: The establishment of a new market within an existing Industry is a must. This market keeps expanding, eventually encompassing most of the Industry itself.

Establishment of a New & Sustainable Business Model: The actual value lies in this model and the products/services attached to it.

Change in Consumer Behavior: A disruptive idea changes the way consumers perceive and use products and services relating to the Industry.

Some examples of powerful disruptions in the past include -

UBER - changed the way the taxi market completely using technology and innovation. All stakeholders benefited from this.

APPLE (IPAD) - challenged the idea of a portable computer.

SKYPE - changed the way people communicate with each other by offering a service which is much cheaper than traditional telecom services.

ZYNGA - introduced people to the concept of social gaming. There was always a need to connect with new people to play games with. Zynga did just this and how well it worked.

Keep your Churn Rate Low

Churn Rate is an annualized percentage at which a business having recurring customer base (customers hooked onto a plan offered by the business such as subscriptions etc.) loses its customer base. For example, a churn of 5% means that the business loses 5% of its customer base during a year.

So why it is important? This is going to happen in any business and we can always get new customers.

This thinking is wrong and can prove expensive for the business. We focus so much on customer acquisition that customer retention tends to get ignored. It is a proven statistic in any business that acquiring a customer is much more expensive than retaining your existing customers. Hence it becomes important to focus on customer churn. Rather than spending all of our marketing budgets in acquiring new customers, we should look at spending a significant amount on retaining the existing ones. A business cannot get onto a sustainable high growth trajectory merely on the basis on new customers.

How do we reduce churn?

To retain customers, we need to look at customer experience and feedback. Customers will keep coming to you if you build trust first and can subsequently offer a service which is equal to/better than your competitors. Focus on how users interact with your product, what they like, what they dislike, and use these metrics to keep enhancing their experience over time.