Monthly Recurring Revenue (MRR)
Definition: MRR is the predictable and recurring revenue generated from customers on a monthly basis. It’s one of the most fundamental metrics for subscription businesses.
Why It Matters: MRR provides a snapshot of the business's financial health and allows you to forecast future revenue. By tracking MRR, you can assess growth and identify trends in customer acquisition or churn.
Calculation:
Annual Recurring Revenue (ARR)
Definition: ARR is similar to MRR, but it represents the total recurring revenue expected annually from all active subscribers.
Why It Matters: ARR offers a longer-term view of subscription revenue and can help with strategic planning and forecasting over a yearly period.
Calculation:
Customer Churn Rate
Definition: Customer churn rate is the percentage of customers who cancel or do not renew their subscriptions over a given period (typically monthly or annually).
Why It Matters: Churn is a major factor in the growth of a subscription-based business. A high churn rate can offset customer acquisition efforts and lead to revenue decline.
Calculation:
Net Revenue Retention (NRR)
Definition: NRR measures revenue growth or decline from existing customers, accounting for upgrades, downgrades, and churn.
Why It Matters: NRR is a strong indicator of customer satisfaction and the effectiveness of upselling or cross-selling strategies. An NRR greater than 100% indicates that existing customers are generating more revenue than is lost due to churn.
Calculation:
Gross Revenue Retention (GRR)
Definition: Gross Revenue Retention (GRR) is a metric that measures the percentage of revenue retained from existing customers over a given period, excluding any new customer revenue. It takes into account factors like customer churn (lost revenue due to cancellations), downgrades, and expansion (e.g., upgrades or upsells) from existing customers.
Why It Matters: GRR helps businesses understand how much revenue they've been able to maintain from their existing customer base, which is a key indicator of customer satisfaction and loyalty.
Calculation:
Average Revenue Per User (ARPU)
Definition: ARPU is the average revenue generated per customer over a given period, typically monthly or annually.
Why It Matters: ARPU is a useful metric to track the overall value that each customer brings to the business and helps to identify pricing opportunities or areas for customer segmentation.
Calculation:
Customer Lifetime Value (LTV)
Definition: LTV measures the total revenue a business can expect from a customer over the entire duration of their subscription.
Why It Matters: Understanding LTV helps businesses determine how much they can afford to spend on customer acquisition (CAC). It also helps in assessing the long-term profitability of customers.
Calculation:
