As SaaS business models continue to gain popularity, it’s important for these companies to track their success through metrics like Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR). Both metrics are used to measure the revenue generated by subscription-based business models, and they offer different insights into a company’s performance.
For SaaS subscription management, ARR represents the total amount of recurring revenue generated by a subscription-based business over a 12-month period. This metric is calculated by multiplying the monthly subscription fee by the number of subscribers and multiplying that by 12. For instance, if a SaaS company has 1,000 subscribers paying $100 per month, its ARR would be $1.2 million. ARR is a useful metric for investors and executives who want to track overall revenue growth since it provides a high-level view of a company’s revenue stream over a year.
Subscription billing software is essential in managing revenue growth in a subscription-based business model. On the other hand, MRR represents the total amount of recurring revenue generated by a subscription-based business on a monthly basis. MRR is calculated by taking the total monthly subscription revenue and multiplying it by the number of subscribers. Using the same example as above, the company’s MRR would be $100,000. MRR offers a more granular view of a company’s revenue stream, which can be useful for tracking growth and identifying trends in customer behavior.
So, which metric is more suitable for tracking revenue in a SaaS business? It depends on the company’s goals and the insights it wants to derive from its data. If a company is focused on overall revenue growth, then ARR may be the more useful metric. However, if a company wants to understand trends in customer behavior, such as changes in churn rate or upgrades/downgrades, then MRR may be a better choice. Effective management of SaaS subscriptions through subscription billing software is vital to tracking both ARR and MRR for sustainable revenue growth in subscription-based business models.
