Growing MRR is pretty simple, right?
If you disagree then you're in the right place because I'm about to share proven-to-work techniques to grow your monthly recurring revenue. No matter if you're trying to improve your MRR (monthly recurring revenue) or ARPA (average revenue per account) as a software provider, or as a service provider, these tips will work for you.
Let's get started. You currently sell something to customers and they pay you for it. Whether you're collecting payments monthly or annually, you still have an MRR figure. If you have 100 customers each paying you $1,000 per year, your MRR would be $8,333. If you have 50 customers each paying you $150 per month for your service your MRR would be $7,500.
As we (sadly) know, money doesn't grow on trees, so to make more money and grow your MRR, you'll need to find ways to generate more revenue somehow. Keep this in mind... depending on the size of your customer base it may be easier to double your revenue by doubling your ARPA than by doubling your customer count.
For the purpose of this guide, we're going to focus on a SaaS company that has 500 small business customers each paying $300 per month for use of their retail POS software. This means their MRR is $150,000 and their monthly ARPA is $300. Let's call them, ABC Software. ABC Software has a few ways to increase their MRR, which I'll break out below. Spoiler Alert - Option 5 is our favorite option.
Option 1 to increase MRR: Develop more software and sell it as an "additional module" or "premium add-on".
The first option we're going to explore involves you looking at what problems your software currently solves for your customers, and where your gaps are. By "gaps" I mean either (1) features that your platform doesn't have that your customers need to buy from a 3rd party then integrate (or run unintegrated) to your system which you can start to offer, or (2) other services that your customers need to run their business that you can start providing them with. As mentioned above, ABC Software provides POS software to retailers. When retailers sell their products online they must adhere to strict tax regulations which vary by state and country. This means many of ABC Software's customers are also using a 3rd party tax tracking software, such as Avalara. This is a gap! ABC Software could develop a tax tracking premium add-on for their POS solution and sell it to their customers. Because theirs would be an integrated software solution it provides more value than the unintegrated product, so in theory ABC Software can charge more than their competition for the same features since there is additional value in the integration and ability to consolidate vendors. Alternatively, ABC Software can charge less than Avalara if they wanted to to grow sales, service value, or customer loyalty because they don't need to charge that much since this is just additional revenue - gravy on top of their core licensing fees. Option 1 requires your business to have development resources available.
Option 2 to increase MRR: Hire more sales reps and spend more on advertising
Well this one is obvious. If you want to grow your revenues and double your MRR you'll need to start getting a lot more customers. To do this you'll need to invest in sales and marketing efforts, which can be expensive and risky. If you have 2,500 customers each paying you $15/month do you think it'll be easier getting an additional 2,500 customers while keeping churn at 0%, or creating more value and charging your existing customers more each month? Getting 500 new customers will only raise your MRR by less than 25%. Providing more features or premium add-ons that enable you to earn $25/month will raise your ARPA by over 40%.
It's far easier to sell new products to existing customers than to sell existing products to new customers. That's why we don't like this option for businesses that already have over 2,500 customers (unless they're venture backed).
Option 3 to increase MRR: Acquire your growth by buying one of your competitors
Have a competitor with a large number of customers? Buy them. Buy them and let their customers keep running their product, or migrate them to your product over time. Either way, acquiring a business can be the fastest way to grow your MRR and revenue.. although it can come with its own set of challenges.
Option 4 to increase MRR: Partner with other service providers in your industry so you can make money from referrals.
Using the tax tracking software example again from Option 1, rather than ABC Software developing it on their own, they can introduce their customers to an industry leader and earn an ongoing revenue share in the process. These types of revenue share deals exist in all areas of business, and can lead to a nice passive income stream. The most common types of partnerships for software providers are for payments, hosting, 3rd party licenses, and marketing tools. The main drawback for referral-type partnerships is that you are required to keep an eye on your leads and ensure you get paid. Often times partnerships are created but busy lives & businesses get in the way of actually turning them into profit. If you don't have the time to manage your partnerships, you can leverage a service to do it for you, such as a service we rely on, The Partner Machine.
Option 5 to increase MRR: Partner with value-add white label service providers, like Merchynt, to offer your customers more services, without having to develop anything yourself.
Did you know that much of the software you use today isn't actually developed by the company that sold it to you? That's right. The world is made up of white label software resellers, which means that companies are putting their brand on products and services that they didn't develop, then selling it to their customers at a mark-up.
As an example, let's say that ABC Software in Option 1 didn't want to rebuild the tax compliance features themselves but wanted to offer the features to their customers to stay ahead of their competition. They can actually white label an existing tax compliance service and sell it to their customers as their own. This way they can market the features as theirs, they collect 100% of the revenue, they raise their MRR & ARPA, and their development effort and go-to-market time is significantly reduced. As mentioned before, it's far easier to sell additional products to existing customers than to sell existing products to new customers. It's even easier when you don't need to develop the additional products yourself.
If you can find a service that your customer is currently paying $90/month for and offer it to them for $45, and make a 100% mark up on it yourself, wouldn't you want to do that for yourself and for your customer? This is where true value is created for software providers and small business owners alike. That's why this is our favorite option.
Option 6 to increase MRR: Raise your prices
When all else fails.. raise your prices. We don't actually think this is a good idea, unless of course you start offering more services or value.
All of these options can help you double your MRR, but the best option for your business will depend on your company's development resources, sales team size, and growth ambitions. The worst option is to do nothing, and luckily some of the options are easy to do with minimal effort.
If you're interested in learning more about how Merchynt helps SaaS and other companies working with SMBs grow their MRR and ARPA without requiring upfront investment or development reach out to us at firstname.lastname@example.org - as former POS software providers, we'd love to hear from you!