Software as a Service (SaaS) companies monitor many Key Performance Indicators (KPIs) to measure the health of their revenue streams. The selection of SaaS KPIs depends on a variety of factors, including business model, targeted growth and the maturity of the company. But it’s safe to say that for SaaS companies, one of the most important KPIs to monitor is recurring revenue. A company’s ability to track and analyze recurring revenue can empower operations, facilitate funding and more.

Table of Contents

1. What Is Recurring Revenue Analysis?
2. How MRR Analysis Drives SaaS Success
3. The Role of MRR in SaaS Company Lifecycles
4. Why MRR Analysis Matters at Every Stage
5. Empower Your SaaS Success with MRR Analysis

1. What Is Recurring Revenue Analysis?

Recurring revenue analysis is a vital SaaS KPI used by management, investors, and bankers to evaluate the health and stability of a company’s revenue stream. Depending on the product offering and sales model, SaaS companies monitor either Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR):

• ARR: Used for annual software subscription renewals.
• MRR: Applied to monthly subscription renewals.

For simplicity, we’ll focus on MRR, but the principles and benefits discussed apply to SaaS companies using ARR as well.

Effective MRR analysis requires robust financial reporting and operations designed to access and interpret key revenue data. Strong MRR analysis leverages cohort analysis, isolating revenue data by month and generating a waterfall report. This report tracks monthly revenue streams while providing deeper insights into the customer lifecycle, including new, existing, and churned customers. Additionally, it highlights customer onboarding issues, erosion/churn trends, and life expectancy.

Want to learn more about related metrics? Read our blog: “Demystifying Common Subscription-Based Business Model Concepts.”

2. How MRR Analysis Drives SaaS Success

MRR analysis is a powerful tool for SaaS companies, offering actionable insights that help optimize operations, improve customer retention, and achieve profitability. Below are the key ways MRR analysis contributes to a company’s success:

Validating Onboarding Metrics

Customer onboarding is a critical phase for SaaS companies, as it marks the transition from sales to revenue generation. Subscription-based companies must ensure that new customers are fully onboarded before revenue can be recognized. MRR cohort analysis serves as a valuable checkpoint, enabling management to:

• Cross-reference onboarding metrics, such as implementation timelines or support tickets, with the revenue recognized for new cohorts
• Identify bottlenecks or delays in the onboarding process that could impact cash flow or customer satisfaction
• Track how quickly new customers start generating recurring revenue, providing insights into the efficiency of the onboarding team

By linking onboarding performance to revenue recognition, SaaS companies can proactively address issues that might otherwise lead to slower growth or customer churn.

Managing Customer Churn

Customer churn is one of the most significant challenges SaaS companies face, as it directly impacts recurring revenue and profitability. MRR analysis allows companies to:

• Track churn rates within specific cohorts to understand which customer segments or product offerings are most vulnerable
• Identify patterns or trends in customer behavior that precede churn, such as reduced platform usage or missed payments
• Quantify the financial impact of churn, helping management set realistic benchmarks and retention goals

MRR analysis also informs strategic decisions for reducing churn, such as implementing targeted retention campaigns, enhancing customer support, or introducing loyalty programs. For SaaS companies, reducing churn by even a small percentage can lead to substantial revenue growth over time.

Extending Customer Life Expectancy

The average customer life expectancy is a critical metric for SaaS companies, as it impacts long-term profitability and growth potential. MRR analysis helps companies:

• Measure fluctuations in revenue across cohorts to assess how long customers typically remain active
• Identify opportunities to increase customer lifetime value (CLV) by offering upsells, cross-sells, or tiered pricing models
• Evaluate the success of retention initiatives aimed at extending customer life expectancy, such as product enhancements or customer engagement campaigns

A longer customer life expectancy not only drives profitability but also enhances a company’s ability to forecast future revenue and allocate resources effectively

Supporting Revenue Forecasting and Strategic Planning

MRR analysis provides the foundation for accurate revenue forecasting, a cornerstone of SaaS financial planning. By analyzing trends within MRR data, companies can:

• Predict future revenue growth based on historical performance and current customer retention rates
• Inform strategic planning initiatives, such as expanding into new markets or launching additional product features
• Identify potential risks to revenue, such as seasonal fluctuations, customer concentration, or economic changes

For companies seeking investment or expansion, MRR analysis strengthens the financial story presented to investors and lenders, showcasing a stable and predictable revenue model.

Enhancing Pricing Strategies

MRR analysis also plays a role in refining pricing models. By breaking down revenue by cohort, SaaS companies can:

• Test the effectiveness of different pricing strategies, such as discounts, freemium models, or premium tiers
• Measure customer response to price changes within specific cohorts, providing data to fine-tune pricing over time
• Optimize pricing to maximize revenue without compromising customer retention

By incorporating MRR analysis into their financial processes, SaaS companies can transform raw data into actionable insights that drive growth and profitability. This analysis not only supports day-to-day operations but also provides the foundation for long-term success in an increasingly competitive landscape.

3. The Role of MRR in SaaS Company Lifecycles

The necessity of Monthly Recurring Revenue (MRR) analysis evolves as SaaS companies grow and progress through various stages of their lifecycle. Each stage presents unique challenges and opportunities, making MRR analysis a critical tool for both operational management and strategic planning.

Early-Stage SaaS Companies

For early-stage SaaS companies, the primary focus is on acquiring new customers and validating the product-market fit. While MRR analysis may not be a top priority during this phase, it still offers key benefits:

• Tracking Growth Momentum: By monitoring new customer cohorts and their contribution to MRR, early-stage companies can evaluate the effectiveness of their sales and marketing efforts.
• Supporting Investor Conversations: Even in the early stages, investors often look for signs of predictable revenue. A basic MRR analysis can demonstrate that the company is on a path toward sustainable growth.
• Identifying Red Flags: Early churn rates, poor onboarding metrics, or a failure to generate significant MRR growth can highlight potential issues with the product, pricing, or sales strategies

At this stage, simplicity is key. A straightforward approach to MRR analysis helps startups focus on growth without overcomplicating their reporting processes.

Growth-Stage SaaS Companies

As SaaS companies gain market traction, the focus shifts from customer acquisition to retention and revenue optimization. MRR analysis becomes a pivotal tool for navigating this phase:

• Churn Management: Growth-stage companies must actively monitor and reduce churn to maintain a healthy revenue stream. MRR analysis enables management to pinpoint cohorts or segments with high churn rates and develop targeted retention strategies.
• Customer Segmentation: Breaking down MRR data by customer type, region, or product offering provides valuable insights into which segments contribute most to growth, allowing companies to tailor their strategies accordingly.
• Cross-Sell and Upsell Opportunities: At this stage, companies can use MRR analysis to identify opportunities to introduce premium offerings or additional features, increasing revenue per customer.

Growth-stage companies often invest in more sophisticated MRR reporting systems to handle the increased complexity of their operations and to ensure their revenue analysis supports informed decision-making.

Expansion or Funding Stage

When SaaS companies are ready to scale, raise additional capital, or expand into new markets, robust MRR analysis becomes essential for attracting investors and lenders:

• Demonstrating Revenue Stability: Investors look for clear evidence of recurring revenue as a sign of financial health. A detailed MRR analysis demonstrates predictable cash flows and revenue stability.
• Showcasing Cohort Trends: MRR waterfall reports can illustrate customer retention, churn reduction, and revenue growth across cohorts, offering transparency into the company’s ability to retain and grow its customer base.
• Supporting Financial Forecasts: Expansion requires precise revenue forecasting. MRR analysis provides the foundation for accurate projections, giving investors and lenders confidence in the company’s growth potential.
• Valuing the Business: MRR serves as a key input in business valuations, particularly for SaaS companies seeking investment or acquisition. Strong, consistent MRR growth often translates into higher valuation multiples.

In this stage, comprehensive MRR analysis is not just an internal tool—it becomes a powerful asset in external conversations with stakeholders.

Mature SaaS Companies

For mature SaaS companies, recurring revenue often represents a significant portion of total revenue. At this stage, MRR analysis focuses on fine-tuning operations and sustaining profitability:

• Optimizing Customer Lifetime Value (CLV): Mature companies rely on MRR analysis to track the effectiveness of retention strategies and identify opportunities to increase the value of existing customers.
• Driving Long-Term Strategic Planning: MRR trends inform decisions about entering new markets, developing additional product lines, or adjusting pricing models.
• Monitoring Efficiency Metrics: Mature companies often benchmark their customer acquisition costs (CAC) and revenue growth against MRR trends to ensure efficient scaling.

For mature SaaS companies, MRR analysis supports long-term sustainability by balancing growth initiatives with operational efficiency and profitability.

4. Why MRR Analysis Matters at Every Stage

While the focus of MRR analysis shifts throughout a company’s lifecycle, its importance remains constant. From early-stage startups to mature enterprises, MRR analysis enables SaaS companies to:

• Measure performance against industry benchmarks
• Identify risks and opportunities in their revenue streams
• Build investor and stakeholder confidence with transparent, data-driven reporting

Interested in SaaS revenue analysis and forecasting? Read our popular post: “Three Rules for Building Your SaaS Revenue Forecast.”

5. Empower Your SaaS Success with MRR Analysis

MRR analysis is essential for SaaS companies at every stage, offering insights that drive growth, improve retention, and enhance profitability. By leveraging robust reporting processes, companies can make data-driven decisions and build sustainable revenue streams.

At 8020 Consulting, our team can help you develop or optimize your MRR reporting framework to support your goals. Contact us to learn more.