Recurring Revenue (MRR/ARR)

Recurring revenue is a key performance indicator (KPI) that measures the total amount of revenue a company expects to receive from its subscription customers in a particular period of time (generally meassured monthly or annually). It is calculated by multiplying the number of active subscribers by the average revenue per subscriber.

For product managers, the Recurring Revenue is a critical metric for understanding the health and growth of their products. It can be used to track:

• The overall financial performance of the product
• The growth of the user base
• The effectiveness of marketing and sales campaigns
• The impact of new features and product improvements
• The potential for upselling and cross-selling

Recurring Revenue can also be used to forecast future revenue and make informed decisions about product development, pricing, and marketing.

The formula for calculating the Recurring Revenue is:

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For example, if a company has 100 active subscribers and the average revenue per subscriber is $10, then the MRR is $1,000.

Two types of Recurring Revenue:

1. New Recurring Revenue: The revenue generated from new customers who have subscribed in the current period.
2. Expansion Recurring Revenue: Additional revenue gained from existing customers who upgraded their subscription or purchased add-ons during the current period.

By tracking these metrics together, product managers can get a more complete picture of the health and growth of their products.

Some of the benefits of tracking Recurring Revenue are:

• Forecasting future revenue: Recurring Revenue can be used to forecast future revenue by extrapolating current trends. This information can be used to make decisions about hiring, marketing, and product development.
• Identifying growth trends: Recurring Revenue can be used to identify growth trends by tracking changes in the number of customers, ARPU, and churn rate. This information can be used to focus marketing efforts on the most profitable customers and to identify areas where the business can improve its customer retention.
• Making strategic decisions: Recurring Revenue can be used to make strategic decisions by evaluating the impact of different pricing plans, marketing campaigns, and product features. This information can be used to optimize the business for long-term growth.

Recurring Revenue is a mandatory metric for product managers to track, but it is important to keep in mind that it is not the only metric that matters. Other important metrics include:

• Customer acquisition cost (CAC)
• Customer lifetime value (CLV)
• Churn rate
• Net promoter score (NPS)

By following these tips, you can use Recurring Revenue to become a more effective product manager and help your company achieve its revenue goals.