Subscription Metrics 101
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Subscription Metrics 101
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Almost Everything I Needed to Know about Recurring Revenue I learned from Pink Floyd
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It’s all about
TIME
And
MONEY
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Compounded Growth is Great
More Predictability
$0
$2,000
$4,000
$6,000
$8,000
$10,000
“Upside Subscription Business”• 20% Customer Growth• 10% Customer Up-sell
“Subscription Business”• 20% Customer Growth
“Transactional Business”• 20% Customer Growth
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But You Have to Control Churn
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MRR – Monthly Recurring Revenue
Monthly Recurring Revenue at the end of each month. Computed by taking the MRR from the previous month and adding Net New MRR.
Some businesses like to use CMRR for Contracted MRR
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Why is CMRR different than MRR?
Evergreen
vs
Termed
Billing frequency is different than commitment/contract term!
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ARR – Annual Recurring Revenue
ARR = Annual Recurring Revenue
Most often used in businesses where contracts are at least a year in length). ARR = MRR x 12
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ACV – Annual Contract Value
Annual Contract Value of a subscription agreement. For multi-year agreements we typically will also look at TCV
TCV = Total Contract Value
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DMRR – Delta MRR
Delta MRR is the Change in Value in MRR
USUALLY FROM A CROSS-SELL OR UPSELL(can be a negative value if it’s a downsell)
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Churn
There are a lot of ways to look at churn!
• Net Numbers – absolute numbers of churn
• Percent - churn expressed as a percentage of customers in period
• MRR Churn = Churned MRR
Previous Months MRR
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MRR Expansion vs. DMRR
% MRR Expansion - Increase in revenue from existing customers as a % of total revenue.
Delta MRR
Previous Months MRR % MRR Expansion =
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% Net MRR Churn
This is a helpful metric, but please don’t get me started on “negative churn”
% Net MRR Churn = Churned MRR - DMRR
Previous Months MRR
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Metrics How to Use
Is the business growing over time, or contracting? How much deferred revenue are you building in your revenue base that you can use to drive future growth?
Committed Monthly Recurring Revenue
Delta Monthly Recurring Revenue
Annual Contract Value
Reasons for Customers Leaving
% Customers Staying
Why is monthly recurring revenue increasing or decreasing? Bigger contracts? Less discounts? New promo?
What is the total vale of annual customer contracts that are committed?
Why is churn occurring? Natural organic churn, product deficiency, competition?
How effective are you at renewing customers over time?
CMRR
DMRR
ACV
CHURN
RENEWALS RATE
So Here are the Basics
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Now That You Have The Basics….
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What’s All the Fuss about Wall St?
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Traditional Income Statements are Backward Looking
Income StatementFor Period Ending December 31, 2013
Traditional income statements measure revenue based on how much money you made this past period.
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And They are One-timed Focused
Traditional income statements do not differentiate one-time from recurring revenue or expenses.
Income StatementFor Period Ending December 31, 2013
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CAC – Cost to Acquire a Customer
CAC =SUM of all Sales & Marketing Expenses
Number of New Customers Added
Is CAC the new COGS?
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Entering ARR + New ACV - Churn = EXITING ARR
The Simple View of “The Three Metrics”
ARR
Growth Efficiency
Sales & Marketing Expense / New ACV Recurring Profit Margin
(Entering ARR – COGS – G&A – R&D) / Entering ARR
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Expanding the 3 Metrics
How much of your ARR you
keep every year
Entering ARR less annualized
Non-growth spend
How much does it costs to
acquire $1 of ACV
Retention Rate
Recurring Profit Margin
Growth Efficiency
Annual Recurring Revenue
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Case Study
Informatica launched SMB product driving
new CMRR by 40% in 12 months.
KNOW
Zuora gives us the right commerce tools and metrics to be able to instrument our business for growth.
Ron Papas, Senior Vice President & General Manager
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