Recurring revenue is an important metric for businesses providing products or services. This article will introduce you to the types of recurring revenue and how to optimize them.

What is recurring revenue?

Recurring revenue plays an important role in measuring the business performance of businesses.

Recurring Revenue is the income that a business receives continuously and regularly over time, usually coming from sources such as:

• Subscription fee: A recurring payment fee to use a service or product (e.g. software, cloud storage service)
• Service contract: A business signs a contract to provide services to customers for a certain period of time at a fixed fee.
• Membership package: Customers pay a fee to become a member and receive special offers.

Difference between ARR and MRR

MRR stands for Monthly Recurring Revenue, which is monthly recurring revenue.

ARR stands for Annual Recurring Revenue, which is annual recurring revenue.

ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) are two important indicators to measure a business’s recurring revenue. However, these two indexes have some important differences:

Time frame:

• ARR is an annual recurring revenue type.
• MRR is monthly recurring revenue.

Granularity:

• ARR: Provides an overview of recurring revenue over a year.
• MRR: Provides more detailed information about recurring revenue each month, helping businesses monitor business performance more closely.

Application:

• ARR: Often used for revenue forecasting and long-term financial planning.
• MRR: Often used to evaluate short-term business performance, especially the effectiveness of customer attraction and retention strategies.

4 ways to optimize MRR and ARR for your business

MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) are two important metrics to measure the effectiveness of recurring revenue. Optimizing MRR and ARR will help businesses increase profits, enhance value and create momentum for sustainable development. Here are effective tips to optimize MRR and ARR:

Reduce CAC costs

Reducing customer acquisition costs (CAC) is one of the most effective ways to increase business profits. When CAC is low, businesses will be able to gain more profit from each customer they attract. Reducing CAC costs plays an important role in improving business performance, especially for businesses applying business models based on recurring revenue (MRR, ARR).

There are many ways to reduce CAC costs, specifically:

• Optimize marketing campaigns: Target the right audience, Use effective marketing channels, Monitor the effectiveness of each marketing campaign to adjust when necessary.
• Increase SEO efficiency: Optimize website for SEO by using appropriate keywords and optimize website content to attract natural traffic. Increase website reputation by building backlinks from other reputable websites.
• Take advantage of referrals from customers: Provide promotions for both referrers and referred people, Build a systematic referral program to attract new customers, etc.

Increase average order value

Average order value (AOV) is an important metric in business, representing the average value of each order sold. Improving AOV can help businesses increase revenue and profits without having to increase the number of sales orders. Increasing average order value (AOV) is a set of strategies and activities aimed at increasing the value of each order a customer makes.

Optimize customer lifetime value (CLV)

Customer lifetime value (CLV) is an important indicator in business, representing the total revenue value that a customer brings to a business during the time they are a customer of the business. CLV optimization is the application of strategies to increase the value that each customer brings to the business. This can be done by: Increasing customer retention, Increasing average order value (AOV), Encouraging customers to recommend products/services to friends

Make the most of Upsell and Cross-selling

Upselling and Cross-selling are two effective sales techniques. This helps increase revenue and profits for businesses by encouraging customers to buy more products/services, including:

• Upselling focuses on selling higher-end products/services or upgraded versions of products that customers have already purchased. For example, encourage customers to purchase a higher-end service package with more features.
• Cross-selling focuses on selling products/services that complement the product the customer has already purchased. For example, encourage customers to buy a case and headphones when buying a new phone.

Through this article, you surely have a clear understanding and know how to optimize recurring revenue. Hopefully, effectively applying these methods will help your business achieve its business goals and develop sustainably.