Why Monitoring MRR Is Essential to MSP Growth Plans
For MSPs, monitoring your monthly recurring revenue (MRR) is essential to your growth plans. But why is MRR so important? In this blog post, we explain the importance of MRR and how you can use it to your advantage. We also provide tips on how to grow your MRR to achieve your business goals. So if you're ready to learn more about MRR, keep reading!
What Exactly Is MRR?
Your monthly recurring revenue is the total amount of money your clients pay regularly. This amount includes all subscription fees and service invoices generated as the result of a managed services agreement between your company and your clients.
Managed services agreements are usually long-term in nature, include an element of support, and cover cloud suites like Microsoft 365. Individual offerings, such as email and hosted VoIP platforms or specific line-of-business applications, are also commonly included.
The term monthly recurring revenue can also apply to a myriad of other support options that MSPs deliver on an ongoing basis. Such offerings can include procurement and refresh programs, hardware as a service (HaaS), general technology consulting, disaster recovery (DR) planning and testing, and cybersecurity monitoring.
Why You Need MRR?
A predictable pipeline of income helps you avoid financial roller coasters. The profits derived from one-time activities, like server installation projects and hardware refreshes, are fantastic. However, an overreliance on those events can create volatility in cash flow. It only takes one client who delays payment on a single large invoice to cause a ripple effect across an MSP’s balance sheet.
Focusing on MRR as a key growth strategy helps avoid the peaks and valleys commonly associated with project work. With MRR as your foundation, you can build a more consistent and predictable business. As recent events have shown, providers that focus on creating recurring revenue streams tend to be far better prepared for unexpected economic challenges than those that don’t.
MRR is also an important indicator of how well your business is performing. The higher your MRR is, the more successful you’re likely to be. If you’re looking for ways to improve your business, monitoring MRR is a great place to start.
The Importance of Monitoring MRR for an MSP
MRR is a critical metric for any business, but it’s essential for MSPs. Why? Because MRR reflects the stability and growth of your managed services practice. It can indicate whether your business is growing and whether you’re meeting your clients’ needs.
In addition, MRR determines your ability to scale your business. The higher your MRR is, the more you can expand and add new clients. The more clients you have, the more revenue you can generate and the better your chances are of achieving your business goals.
Since monitoring MRR allows you to project future revenues and income accurately (and in advance), it’s an essential part of managing your business. By knowing how much money is coming in each month, you can make educated decisions to allocate your resources better.
Knowing your MRR helps you plan future expenses such as office expansions or new hires. It allows you to adjust pricing, if necessary, to maintain healthy margins. It also gives you a snapshot of your financial health.
Keeping a close eye on your MRR is vital because it helps predict future cash flow and revenue. It also reveals billing issues and identifies areas for improvement to increase efficiency, growth, and profits.
How to Increase Your MRR Without Adding New Clients
Now that you know the importance of MRR, follow these tips to increase it.
Audit Your Existing Agreements to Prevent Revenue Leakage
Revenue leakage occurs when you provide a product or service to a client that never gets billed. Most commonly, this happens when additions are made to subscription services. For example, a client may hire a new employee who requires an additional email account. The mailbox is ordered and activated, and the vendor now bills you for the additional license. However, because the new license was never documented in your billing system, the client never ends up paying for it.
To prevent this situation, audit your existing agreements regularly to ensure all provided services are billed accordingly. If you feel conducting regular audits is too time-consuming for your staff, use a billing reconciliation system, such as Goolash by Zomentum, to automate the process for you. This type of system helps you maintain accurate and up-to-date records and increases your MRR.
Offer Add-on Services
When clients are happy with your service, they’re more likely to stick around and increase their spending. Offer them additional services that complement what you’re already providing. This could be anything from a new security product to extra cloud storage space.
If you’re unsure what services to offer, ask your clients what they need. They might not know how to ask for what they need, but they’ll certainly appreciate the fact that you’re trying to meet their needs.
Increase Prices … Carefully
One other way to increase your MRR is to raise prices. It might be a tough sell at first, but it’s often the best way to keep client acquisition costs low while maintaining profit margins.
Raising prices can cause some clients who aren’t under contract to start shopping around. Therefore, you’ll need to improve your value proposition by offering better service and more advanced products or services than what your competitors offer.
You can also create incentives for existing clients by locking in prices for moving to a contract or renewing existing contracts early while increasing prices for new customers.
Monitor MRR for Growth
Not all MSPs are created equal. Achieving and maintaining a high level of MRR helps you stand out from the crowd and shows you’re committed to providing long-term quality service.
Monitoring your MRR is essential to your growth plans and should be done regularly. Use the tips in this post to increase your MRR and help your business reach its full potential.