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8 Comments

Why we celebrate every $ of new MRR

Karma (http://indiehackers.com/product/karmabot) is a subscription-based service. This comes in handy when we need to talk numbers with anyone interested in Karma's financial prospects.

We get regular notification from Stripe API, which is connected to ProfitWell. Most of the times it's about a new client, a new monthly recurring revenue (MRR) figure. Today we had a nice chat with the team on why every dollar of new MRR is important.

All ups and downs aside, today we've got $11,035 MRR and 172 paying teams. They won't disappear overnight, which means we can rely on this figure and plan the future of Karma.

This translates into $132,420 of annual recurring revenue (ARR = 12 × MRR).

On average, for the last 6 months, Karma's been growing 12% (MoM growth). If such (moderate by VC terms) growth continues, we reliably get to $515,905 ARR by the end of 2020.

$11,035 is likely to become $11,035 × 1.12 = $12,359 in about a month from now and so on. Extrapolate that for the rest of the year 2020.

MRR | ARR = MRR × 12
$11,035 $132,420
$12,359 $148,310
$13,842 $166,108
$15,503 $186,041
$17,364 $208,365
$19,447 $233,369
$21,781 $261,374
$24,395 $292,738
$27,322 $327,867
$30,601 $367,211
$34,273 $411,276
$38,386 $460,630
$42,992 $515,905

The extra $90 you see on the screenshot attached is actually an equivalent of extra $4,208 in ARR in a year from now.

As a founder, I see +$90 (🌱) and I think: good, +$4k more (🌳).

I can even go one step further and speculate that the company's value, which can be based on the ARR × 10), has just become $42k higher, slightly above $5.15m.

I'm relatively new to all this, please feel free to correct me on any of the above. Thanks! 🙏

  1. 2

    Hey, Stas. Great read.
    Your numbers are great!

    However, your projections don't include churn. It makes a lot of difference in the long run.
    Let's say your yearly average churn would be 10% (which is pretty low number). Than your average lifetime of the customer would be 10 months (1/0.1), not 12. And thus all the calculations will be different.

    Check out good read on churn for SaaS here - https://gopractice.ru/saas_analytics_churn_part1/

    Also, the way you calculated $4k is also not technically correct. You calculated it based on the assumption that that specific customer will grow 12% per month. That would mean your yearly Net Revenue Retention Rate would be 389% [1.12 ^ 12]. Which is an insanely high number. Even Slack didn't have it (only ~150%). More on Net Revenue Retention Rate here - https://customergauge.com/blog/retention-and-how-to-measure-it

    Your 12% monthly growth is most likely driven by [(1)new customers + (2)expanding existing customers - (3)chruned customers]. In $90 -> $4k you took into account (1 + 2 + 3). But correct would be only (2).

    Hope these numbers are helpful)

    1. 1

      1% churn included in 12% net growth here. Sorry, I should’ve mentioned that.

  2. 1

    It's an awesome stat and great attitude @karmabot - I'm sure your team will go further and bigger. Question: What makes a user leave your product?

    1. 1

      Thanks. Usually, a company buys Karma when at least 75% of customers use it regularly. Similar to money, people beed to believe in it for it to become valuable. Teams stop using Karma when the adoption level is low. Sometimes this means that the team is not too active on chats. Sometime Karma is installed by team leaders who have no time to share with the rest of the group.

  3. 1

    First of all, I like how you celebrate each new customer you get.

    Like @andriybas has written, your calculations need a bit more refining, especially given you've missed figuring in churn.

    Churn will naturally be lower if you're charging annual subscriptions vs monthly. In fact, annual churn can be up to 30% less relative to monthly churn.

    Given the lower churn in annual subscriptions, if you're considering adding annual or even quarterly plans, just ask your customers 3-6 months after they've signed up if they'd like to go annual. That way they have enough experience with your product to make an informed decision.

    And offer some sort of discount like 1 or 2 months free for moving to the annual plan.

    Then you can truly look at your ARR numbers without extrapolating from your MRR. 👍👍

    1. 2

      1% churn (it’s low with Karma) is included in net growth, thanks.

      1. 1

        That's exceptionally low. Congratulations. 👍👍

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