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24 Comments

Please stop using these terms incorrectly 🤦‍♂️

There's no shortage of jargon for makers to throw around...

Unpopular opinion: I'm slowly getting pestered by seeing these 4 terms being used out of context 👇

1️⃣ MRR & ARR

Monthly RECURRING revenue. It's exactly what the title claims.

Makers need to remember that there's a difference between MRR and just monthly revenue.

Let's say you made $1k in your first month. Great!

You've now made $1k in monthly revenue, but at this point, there's no recurring element to this amount.

Now, when you consistently start making $1k across every month, you can confidently announce that you have a recurring monthly revenue stream ✅

The same concept applies to ARR.

If you've been in business for 3 months, you've generated $X in TOTAL REVENUE, not annual recurring revenue.

2️⃣ Revenue vs profit

Another topic I want to highlight is the difference between revenue and profit.

Last month, I turned over $4.5k in revenue, with $3k of that being profit.

As far as I'm concerned, there's $1.5k that doesn't exist.

In a community/industry where we're trying to create long-term businesses, why is the main measurement of success just revenue?

If you're optimising for a financial goal, monthly profit (MP/MRP) should be the lead measurement.

3️⃣ User vs customers

Getting XXXX amount of users is different from acquiring X amount of customers.

In my opinion, users are those who consume your product for free.

Customers, on the other hand, pay to use your product or service.

Unless you're building an ad-supported product like Facebook, you'll need to source paying customers if you plan to stay in business.

4️⃣ Followers aren't always an audience

You may have 10k Twitter followers, but that doesn't mean you have an audience of 10,000...

Of those 10k people, let's say 4% actually engage with your content.

Of this 4%, how many of these people would you actually consider to be your target customers?

In summary 👇

Is there anything else you'd add to the list?

These are just a few opinions I hold based on my personal experiences. I'm sure there's plenty of founders out there who could also justify valid opposing views.


If you're interested in following more of my content, I frequently share transparent insights about my journey here.

  1. 4

    I have a $2m ARR business. It makes sense when you're still small to treat profit as your take home earnings, but I would suggest moving away from that as early as possible, depending on your goals, expansion plans, etc. A profit margin is important to keep cash in the bank to handle next month's fluctuations in costs, but I strongly suggest calculating your own flat rate salary inside the costs, and only give yourself a raise with strict KPIs that your business meets. And no matter what size you're at pre-IPO, you should seriously not leave any profit in the company at all. Pour it all into R&D, product iteration, customer acquisition, otherwise you have to pay taxes, so think of it as redirecting your taxes into something you control that benefits your customers, employees, shareholders, and hopefully brings continued growth in the new year.

    1. 2

      All that dedication to goal achievement in a solo business is where success is at. Good write-up!

    2. 1

      This is a great response. Love hearing your perspective as someone who's scaled beyond these early stages. I can definitely see your reasoning.

  2. 3

    So wait, generating 10k pageviews from one post on ProductHunt doesn't mean we have 10,000 monthly users? But it's way cooler to say we have 10k monthly users... 🤣 🙄

    Solid list. The question is, how many people know they're using the terms incorrectly but do it anyway because it paints a prettier picture?

    1. 2

      😂 '10k users after first day on Product Hunt - AMA'

      Very true. I'm definitely guilty of doing this myself in the past. $1k revenue certainly sounds a lot better than $500 profit.

  3. 2

    While I agree with your points, I think many people deliberately use these terms "incorrectly" in order to sound more successful than they actually are.

    If you're doing $1m in revenue but have a bunch of employees and therefore no profits, it sounds much cooler to say "I have $1m in revenue!" than "I have no profits!"

    1. 1

      Yes, this is a perfect example.

      I'd love to see more makers sharing the finer details behind their operations rather than just one overarching figure.

  4. 1

    interesting, thanks for sharing!

    number employees is a vanity metric that it's often used.

    1. 1

      When I was an investor, one metric that we looked at was "revenue per employee" as a quick measure of efficiency/profitability. There are obviously better metrics, but this is very quick to gather and calculate.

      1. 1

        and profit per employee no? in business models in which the number of employees is necessary to increase the production linearly (for example in services) it's important?

        1. 1

          Yes, but it's often quite easy to find and identify revenue. Profit is often more subjective (e.g. before/after taxes? depreciation? amortization of intangibles? interest expenses? other non-recurring expenses? etc. etc.) and harder to come by.

  5. 1

    In my opinion, users are those who consume your product for free.

    Maybe we can divide them as "free users" and "paid users" (only paid users are customers).

    1. 1

      I think that's a good way to deifferentiate between the two.

    1. 1

      Thanks! Would always love to hear if you have any insights to share as well.

  6. 1

    RE: MRR vs MP

    This is a really great point, but definitely something that is learned later in the game of owning your own business. It took me months to start "throwing away" that top line revenue and think in "monthly profit". But I can definitely validate that it's a rough metric to look at at first, but it's really the only metric that matters for a founder. It's the money you have to play with.

    And it's another good point that you don't know how many people will renew. There is definitely a difference between 30k/month revenue and 30k MRR. Yearlies are the lifeblood of consumer SaaS. I have no idea how many of my yearlies will renew until May 22nd, 2021. It's heart-wrenching, but a very important milestone for us to observe and adjust based on.

    1. 2

      Great point!

      I also focus on selling lifetime access to my product, so recurring revenue isn't something I measure at all.

      Fingers crossed for the end of May! I'll be hanging out for an update.

  7. 1

    This was a good read with solid points.
    I differ in opinion that users are those who consume your product (without "for free").

    1. 1

      Thanks!

      As I mentioned, these were only my personal opinions, so I'm open to any suggestions. I'd love to hear your thoughts about users vs customers.

  8. 1

    Very useful article. Thank you for the clarification.

    1. 1

      Not a problem, glad it was helpful.

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