November 26, 2019

MRR is a lagging indicator of success - why is everyone paying so much attention to it?

John Kueh @johnkueh

This is a real question.

Looking at MRR growth every month is excellent, but how often do you guys go into Intercom or your analytics tool to filter for the following?

  • Paying customer + Last seen > 7 days ago
  • Paying customer + Last seen > 14 days ago
  • Paying customer + Last seen > 30 days ago

Looking for these group of churning customers and reaching out is so easy to do, but why aren't people doing it enough?

I subscribe (paying) to a lot of SaaS tools, but not actively using them (forgot/lazy to cancel). When time comes (budget cuts), these are the first to be killed.

A lot of these apps put a form during cancellation to ask 'Why are you leaving?'... But, isn't it too late to reach out to ask questions when the customer has already decided to leave?

  1. 6

    Churn is less flashy and more difficult to measure than growth/acquisition, so people tend to focus on MRR growth. It's also more directly tied to success. You can have 0% churn and still make $0/month, but if your MRR is doubling every month, then clearly you're crushing it regardless of churn.

    Of course, this doesn't mean it's right to ignore churn. Ideally you're paying attention to that and at least a few other numbers. This is just an answer to the question of why MRR gets so much love.

  2. 6

    I pay most attention to MRR as it is the thing that pays the bills.

  3. 4

    I'll tell you why.

    Because SaaS companies don't want to "awake" these dormant users and remind them to cancel their plans. OF COURSE they're aware not everyone who's an active subscriber is an active user. This is true even for some of the most successful SaaS companies. And one of the dirtiest secrets of SaaS companies is that a lot of them profit from dormant subscriptions where the customer is obviously not using (let alone benefiting from) the service yet still paying for it.

    Who doesn't like free money?

    They take the feedback then at cancellation, because at that point there's nothing to lose already. I've had users who haven't touched my product for a year and still pay for it month after month. Honestly I'm not going to disturb them if we're both happy with the way it is.

    1. 2

      :)) exactly, better not message them because they remember you and cancel the subscription

  4. 1

    We have KPI's DAU, WAU,MAU.

  5. 1

    A couple nuances to add to existing comments (which I broadly agree with):

    @csallen rightly disambiguates the two - MRR and churn are separate measures of separate facets of your business. Your measures of retention are an astute way to predict churn and maybe act on it to prevent it.

    Needing a relatively high rate of retention (as indicated by website activity) is not necessarily true for all businesses. I would expect plenty of customers to not interact on the app frequently but still be satisfied.

    @td_evans’s comment suggests to me that MRR is a measure of financial health of the business. Excepting churn (which is also a predictable number for next month), you know what next month’s revenue will be. That’s powerful knowledge. Also, like many accounting metrics, it’s universally understood, regardless of the detailed intricacies of what your business does in particular.

  6. 1

    As a consumer I hate hate hate hate reoccurring payments. Every rent payment that I must make every month, is a tax and burden on my life. I hate every one of them with a passion, and it is my dream to avoid all rent lovers, all covetous landlord mentality, all reoccurring payments; to design everything in house over & time and not pay any buttholes for technology they can't fundamentally prove is a value-add to my life.

    I have a dream that all those whose main aim is collecting rent solely on the ignorance of their customer base, will cry bitter tears of shame and sorrow.

    I have a dream, to allow freedom to ring from every man, and that a time will come when all men will be able to join hands at last and sing in the words of the old Negro spiritual:

    "Free at last, Free at last, Great baby Jesus, We are free at last. [from those who consider MRR a more important metric than providing a highest quality value-add service to the customer]."

    #downwithMRR #MLK2020

    1. 3

      You seem passionate about this

  7. 1

    There are companies who market to lagging customers
    IDK what's the recovery rates.
    But it's like cutting costs vs creating income, there is more potential in the bigger pool.

    Active users per day/month and such are common in apps and focus on onboarding and coming back, aggressively..

    From the times I stopped using a thing I don't think some communication would have got me back or to respond, due I don't buy much.

    1. 1

      Getting the data on why you stopped using it is a lot more precious compared to getting you back.. to prevent same group of other users going through the same experience as you.

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