The Ultimate Guide: 10+ Proven Methods to Expand Your Monthly Recurring Revenue
From Pricing to Unbundling - Expand your MRR with these proven strategies
"Price is what you pay. Value is what you get." - Warren Buffett
In the intricate Startup game of SaaS business strategy, think of Monthly Recurring Revenue (MRR) as your king to your chessboard – crucial, revered, and often chased around by entrepreneurs like it's the last piece of cake at a party. It's the heartbeat of your digital realm, pumping vital cash flow into your startup venture. Yet, even the most astute startup founders often hit a wall, wondering how to give this king a throne worthy of its importance. Let’s journey through strategies as varied and delightful as the toppings at a frozen yogurt shop – each promising to make your startup healthier and a tad more indulgent.
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on – your subscription helps us donate to The Children’s Heartbeat Trust in Belfast ❤️ and unlocks all our premium content.Understanding MRR: The Backbone of Your SaaS Venture
Monthly Recurring Revenue, or MRR, is the heartbeat of any subscription-based business no matter the stage of your startup. It’s the reliable income you can expect every month, derived from your subscriptions or memberships. Calculating it is straightforward: Multiply your average revenue per user (ARPU) by the total number of customers for that month. If your ARPU feels like a cryptic acronym, fear not, it’s simply your total revenue divided by the total number of customers.
ARPU is calculated as follows:
Total amount of revenue divided by total number of customers = ARPU
MRR is calculated as follows:
Average revenue per user multiplied by the total number of customers per month = MRR
For example:
If you sell a CRM software subscription at £49 per month and have 1,000 customers, your MRR is £49,000. (£49 x 1,000 = £49,000)
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1. Optimise Your Pricing Strategy
Imagine if your pricing strategy were akin to a forgotten novel on a dusty shelf, overlooked yet filled with untapped potential. In the bustling world of startups, it's astonishingly common for startup founders to allocate as little as six hours to devise their pricing, a critical oversight that can stifle Monthly Recurring Revenue (MRR) growth. But what if, with a few strategic tweaks, you could transform your pricing model from a neglected ally into your startup venture's secret weapon?
Exploring Your Startup Pricing Options
The journey to optimise your pricing is less about a one-size-fits-all solution and more about tailoring your strategy to match the unique value you offer. Here's how various pricing models can unlock new realms of revenue potential:
Flat-rate Pricing: Simple yet effective, this model offers a single product or service at a fixed price. Consider Zoom’s Pro Plan, a masterstroke of flat-rate pricing, providing an optimal balance of features and cost, thereby appealing to a wide array of businesses and professionals.
Good-Better-Best Pricing: This tiered strategy presents customers with three options, typically labeled as Good, Better, and Best, each offering incrementally more value. Adobe Creative Cloud executes this brilliantly by catering to different user needs, from individuals to large enterprises, ensuring each finds a plan that suits their specific requirements.
Per-seat Pricing: Charging based on the number of users, per-seat pricing is a favourite among SaaS companies like Slack, where the value scales with team size, ensuring that businesses of all dimensions find a suitable and fair pricing structure.
Usage-based Pricing: This model bills customers based on their consumption, offering unparalleled flexibility. AWS shines here, allowing businesses to scale their usage up or down based on real-time needs, thus aligning cost directly with value.
Tiered Pricing: Similar to good-better-best but with more layers, tiered pricing provides a ladder of options tailored to different segments of your market. Spotify’s transition from a single premium plan to include a family tier exemplifies how understanding customer needs can lead to pricing innovations that significantly boost MRR.
Multiple Prices for Multiple Products: Offering diverse products or services at various price points caters to a broader audience. Microsoft Office 365 leverages this approach, with different bundles for students, individuals, and businesses, each meticulously crafted to meet distinct user needs.
Bundling Multiple Products in a Subscription: Creating packages that combine several products or services can enrich the customer experience while encouraging higher spend. Adobe’s Creative Cloud is a prime example, bundling software to offer comprehensive solutions that cater to creatives of all stripes.
Crafting Your Startup Pricing Masterpiece
Embarking on a quest to refine your pricing model is not just about adjustments, it's about reimagining how your offerings align with customer value. Each pricing strategy mentioned serves as a brushstroke in the broader picture of your business landscape. By considering these options, and perhaps even combining them, you create a pricing mosaic that resonates with your audience, enhances your MRR, and positions your venture on the pedestal it truly deserves. Having said that, ensure you do not overcomplicate your pricing strategy as this itself can deter potential customers.
Remember, the key is not just to choose a pricing model but to wield it with precision, ensuring it reflects the value you deliver and the growth you aspire to achieve.
2. Rethinking Free Plans
The allure of free plans in the SaaS world often stems from their potential as a double-edged sword: on one hand, they serve as an enticing entry point for prospective users, akin to beta testing phases or a welcoming handshake inviting guests in. On the other, they can resemble those party guests who partake in the festivities - enjoying the snacks and ambiance - yet vanish when it's time to contribute or express gratitude. The strategic pivot from offering free plans to focusing on paid subscriptions marks a critical juncture in your startup's journey towards sustainable growth and enhanced Monthly Recurring Revenue (MRR).
The Beta Phase: A Launchpad, Not a Landing Zone
Initially, free plans can play a pivotal role in a product's lifecycle, especially during the beta phase. They offer invaluable insights into user behaviour, product-market fit, and areas ripe for improvement. Dropbox's early success, for example, hinged on leveraging its beta phase to refine its offerings and build buzz. However, the transition from a testing ground to a business model necessitates moving users towards paid plans.
Utilising Free Plans as a Customer Acquisition Tool
Free plans can indeed act as a potent lure for potential customers, providing them with a risk-free avenue to explore your product's value. Yet, this is where strategic foresight is crucial. Instead of viewing free plans as a perpetual offering, consider them a preliminary step in a broader customer journey. By introducing time-bound trials or feature-limited versions, you can whet customers' appetites for the full suite of functionalities that lie just a subscription away.
Navigating the Free to Fee Transition
Transitioning users from free to paid plans is an art that demands both tact and strategy. Communication is key. Clearly articulate the value proposition of upgrading, highlighting the enhanced features, support, and capabilities that await them. Consider employing a grandfathering strategy for existing users, offering them a seamless transition to a paid plan at a special rate. This approach not only preserves goodwill but also incentivises a shift to paid subscriptions.
Innovating with Freemium Models
A nuanced approach to free plans is the freemium model, which offers a basic service at no cost, while premium features are gated behind a paywall. This model can serve as a powerful conversion tool, allowing users to experience the core benefits of your service while creating a natural upsell path. Spotify’s freemium model is a testament to the efficacy of this strategy, engaging users with ad-supported access while enticing them towards premium, ad-free experiences.
Free Plans as Strategic Stepping Stones
In the evolving narrative of your SaaS business, free plans should be viewed not as a final destination but as strategic stepping stones leading towards a robust, revenue-generating ecosystem.
By thoughtfully integrating these plans into your overall business strategy, you can harness their potential to attract, engage, and ultimately convert users into paying customers. The transition from free to paid is a delicate dance of value proposition, customer education, and strategic pricing, a dance that, when choreographed correctly, leads to a harmonious balance of user satisfaction and revenue growth.
3. Unbundle Your Features
Imagine your SaaS product as a Swiss Army knife. Not everyone needs a bottle opener, a screwdriver, and a nail file all at once.
By unbundling your features, you allow customers to tailor their subscriptions to their needs, potentially increasing your ARPU by a staggering 296%, as seen by the brand monitoring tool Mention.
4. Eliminate Unlimited Features
Unlimited features, the all-you-can-eat buffets of the SaaS universe, promise boundless utility and flexibility. Yet, this perceived abundance can paradoxically dilute the perceived value of your service, leading to underutilisation or overextension of resources without corresponding revenue growth.
Implementing strategic limitations on features such as storage, users, or projects can serve as a catalyst for customer upgrades, fostering a natural progression that aligns their evolving needs with your increasing MRR.
A Strategic Pivot: The Adobe Creative Cloud Transformation
A prime example of this strategy in action is Adobe’s pivot from perpetual software licenses to the Creative Cloud subscription model. Adobe recognised the limitations of the "unlimited" one-time purchase model, which constrained both revenue growth and the ability to continuously innovate its product offerings. By transitioning to a subscription model, Adobe effectively capped the unlimited, ensuring that each user's access to its suite of tools was tied to a recurring payment.
This shift not only allowed Adobe to regularly update its software, enhancing value for its users, but also encouraged customers to consciously choose the plan that best fit their usage needs. Users who require access to multiple applications are incentivised to upgrade to more comprehensive plans, directly impacting Adobe’s MRR in a positive manner.
The Psychological Edge of Limiting Features
Limiting features does more than just encourage upgrades, it leverages the psychological principle of scarcity, enhancing the perceived value of your offerings. When users are aware that their plan has boundaries, they're more likely to perceive the available features as valuable and are more considerate about how they utilise them. Moreover, the opportunity to upgrade becomes not just a necessity as their needs expand but also a desirable action that promises access to even more valuable features.
Implementing Feature Limits Wisely
The key to successfully limiting features lies in understanding your users' needs and ensuring that the thresholds for usage are both reasonable and aligned with user growth paths. It's essential to communicate the value provided at each tier, making it clear how an upgrade not only offers more features but also supports the user's journey towards greater success.
By framing feature limitations not as restrictions but as stepping stones towards enhanced productivity and creativity, you can transform potential user frustration into a positive driving force for both user satisfaction and revenue growth.
Leveraging Limitations for Growth
In the grand tapestry of SaaS strategies, the careful curation of unlimited features emerges as a nuanced approach to fostering user engagement and encouraging financial investment. Adobe’s transformation with the Creative Cloud serves as a compelling case study, illustrating how well-executed limitations can bolster both the user experience and the company's bottom line. By implementing feature limits, you not only guide users towards realising the full potential of your service but also secure a scalable and sustainable growth trajectory for your SaaS venture.
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