Strategies to Boost ARR and MRR for SaaS

For SaaS businesses, ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are two of the most important metrics for evaluating growth. ARR and MRR each offer unique insights: MRR captures monthly performance trends, while ARR provides a long-term view of your revenue growth.

For companies with long-term contracts, ARR is often a better indicator of total revenue and growth predictions. Startups or companies with primarily monthly subscribers may benefit more from focusing on MRR to gauge short-term trends.

Both metrics are essential for assessing a subscription-based business, tracking churn rates and renewals, and setting KPIs for customer success. They offer insight into your SaaS company’s valuation and growth potential.

Key Metrics for ARR Growth

Growing ARR requires regular analysis of key SaaS metrics. Set benchmarks for each and examine them consistently:

1. Churn Rate: Churn impacts ARR and MRR by reflecting customer loss. Reducing churn helps maintain steady revenue.
2. Customer Acquisition Cost (CAC): High acquisition costs cut into ARR. If onboarding costs are too high, ARR growth suffers.
3. Customer Lifetime Value (LTV): LTV measures the expected revenue from a customer over their lifetime. High LTV positively impacts ARR and MRR.
4. Gross Margin: A higher gross margin means more room for growth. As it increases, so does your ARR and MRR potential.
5. Bookings: Total value of customer commitments, which helps forecast ARR growth.

Calculating ARR and MRR Growth Rates

While boosting subscription revenue takes time, calculating ARR and MRR growth rates is straightforward.

ARR Growth Rate Formula

ARR Growth Rate=

This Year’s ARR - Last Year’s ARRLast Year’s ARR\text{ARR Growth Rate} = \frac{\text{This Year's ARR - Last Year's ARR}}{\text{Last Year's ARR}}ARR Growth Rate=Last Year’s ARRThis Year’s ARR - Last Year’s ARR​

Example: Last year’s ARR was $3.75 million, and this year’s is $5 million:

ARR Growth Rate=5,000,000−3,750,0003,750,000=33.33%\text{ARR Growth Rate} = \frac{5,000,000 - 3,750,000}{3,750,000} = 33.33\%ARR Growth Rate=3,750,0005,000,000−3,750,000​=33.33%

MRR Growth Rate Formula

MRR Growth Rate=(This Month’s MRR - Last Month’s MRRLast Month’s MRR)×100\text{MRR Growth Rate} = \left(\frac{\text{This Month's MRR - Last Month's MRR}}{\text{Last Month's MRR}}\right) \times 100MRR Growth Rate=(Last Month’s MRRThis Month’s MRR - Last Month’s MRR​)×100

Example: If last month’s MRR was $100,000 and this month’s is $120,000:

MRR Growth Rate=(120,000−100,000100,000)×100=20%\text{MRR Growth Rate} = \left(\frac{120,000 - 100,000}{100,000}\right) \times 100 = 20\%MRR Growth Rate=(100,000120,000−100,000​)×100=20%

Aim for an ARR growth rate between 20-50% and an MRR growth rate of 10-20%. If you’re falling short, consider the strategies below.

Top Strategies to Accelerate ARR Growth

To drive ARR growth, consider implementing these strategies gradually to see the greatest impact.

1. Expand Your Reach

• To increase ARR, bring in new customers. Explore new marketing tactics, expand product features to attract diverse customer segments, and leverage partnerships to reach new audiences.

2. Optimize Customer Lifetime Value (LTV)

• Increasing LTV involves enhancing the customer experience to encourage loyalty. Consistent engagement, regular updates, and excellent support all contribute to higher LTV.

3. Upsell and Cross-Sell

• Existing customers are often ready to expand their usage if given the opportunity. Offer add-ons and subscription upgrades that align with their needs. Explore cross-selling complementary features to maximize value.

4. Identify and Reduce Churn Drivers

• Analyze churn causes and work proactively to reduce them. Survey customers, address common complaints, and create loyalty incentives to keep customers engaged and subscribed.

5. Refine Your Marketing Strategies

• If your ARR isn’t where you want it to be, reassess your marketing. Evaluate email and content marketing, offer trials, and ensure messaging aligns with customer needs. Benchmark against competitors to stay competitive.

6. Lower Customer Acquisition Costs (CAC)

• Revisit the expense of acquiring new customers. Invest in optimizing your website and user experience to improve conversion rates. Cost-efficient onboarding and engagement strategies can boost ARR without high CAC.

7. Encourage Annual Subscriptions

• Annual subscriptions provide stable revenue. Make yearly plans more attractive with discounts and incentives. Ensure your website and sales team clearly communicate the benefits of annual subscriptions.

SaaS Growth in ARR

For SaaS founders aiming to grow ARR, these strategies provide a foundation to improve performance. Start with the areas most relevant to your business, and don’t feel pressured to implement everything at once. Small improvements can make a significant impact on ARR growth.

By focusing on ARR and MRR, you can build a resilient business that increases revenue, improves customer retention, and achieves sustainable growth. With a strategic approach, your SaaS business can reach new levels of success for you and your customers.