Playing by the Rules, or Metrics
- By Ralph C. Jensen
- Mar 01, 2018
Recurring Monthly Revenue, almost always referred as RMR, is probably the most
important metric of any subscription business. It is what makes this business
model so great. Once you acquire a new customer you have recurring revenue,
which means you don’t have to worry about one-off sales every month. Different
from traditional sales, it gives you new challenges such as retention and churn.
The general concept is that RMR is a measure of the predicable and recurring revenue
components of your subscription business. It will typically exclude one-time and variable
fees, but for month-to-month businesses it would include such items.
You might think that if you acquire more customers your RMR would grow, right? That’s
true, but that’s not the only aspect to be considered on a subscription business model.
The metrics of tracking and reporting recurring monthly revenue is evolving. Okay, what
isn’t evolving in this day and age? Our cover story is words of wisdom to the dealers, who
need to embrace consistent account management practices and software powerful enough
to get the necessary information.
Scott MacDougal spells it all out in the cover story when he writes about new metrics
of tracking. The first thing he does as a professional is to have the dealer break down RMR.
Powerful software makes this process a little easier, and there are several key ingredients to
keep in mind while breaking down the numbers.
First of all, define what your RMR really might be. Look at how you code things in your
system, and make sure you understand what has value. Not everything has value.
MacDougal also takes a refreshing look at the Counts vs. the Dollars. Dollars are most
important but counts can be useful to help establish averages. Good software aimed at accounting
methods can provide the dealer with a quick look at summaries and trends. Who
wouldn’t want to know ahead of time the direction of accounting and trends?
To analyze RMR, you might want to consider three different aspects.
New RMR. This is the simply new revenue brought by brand new
customers acquired. So let’s say you have acquired on a given month
five new customers paying $100/month and two new customers paying
$200/month. Your New MRR for that month would be $900.
Expansion RMR. Now imagine that you have three customers that
upgrade their plans from $100/month to $200/month. That means you
have expanded your revenue from existing customers, called Expansion
RMR. Your Expansion MRR for that month would be $300.
Keep in mind that Expansion RMR can come from upselling.
Churn MRR. You should also consider churn. Churn
RMR is the revenue that has been lost from customers cancelling
or downgrading their plans. So let’s say on a given
month you had two cancellations of $100/month plans
and other three customers downgraded their plans from
$200/month to $100/month. You Churn MRR would be
$500. It simply means that you’ll have minus $500 on
recurring revenue for next month. Keep in mind that MRR
churn is different from customer churn.
This article originally appeared in the March 2018 issue of Security Today.