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Your monthly recurring revenue changes month-on-month because of new revenue earned and lost revenue due to churn. Net MRR Growth Rate is an important metric that helps you keep track of these variations.

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Contraction MRR is the total reduction in MRR due to downgrades and subscription cancellations (or churn) compared to the previous month.

When high-value customers try to cancel/downgrade/pause, it’s important to earn their trust and do all you can to make them stay on for longer. You might want to understand the reason behind the churn, such as price sensitivity or value expectation, and reassess your pricing & packaging structures. For example, you can try opening up a few premium features for them or upgrading them to a higher plan for free for the first 6 months.

For month-on-month growth, you can calculate this every month and compare with the previous month. To see a trend, calculate it for a longer period (12-16 months).

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Quick Ratio and NRR tend to flatten out minor, recent variances in data. The net MRR growth rate allows you to look out for any changes in recent trends.

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The perceived value of your product and your pricing should go hand in hand. To boost your MRR growth, you can experiment with your packaging and pricing to find the sweet spot that works best for your customers.

When your customer acquisition strategy is complemented with an effective churn mitigation strategy, boosting your MRR becomes achievable.

Upsells - upselling is when customers move from a free plan to a priced plan or moving from a lower-priced plan to a higher-priced plan.

Tomasz Tunguz (Venture Capitalist, Redpoint) says that an MRR growth rate of 15-20% is a reasonably good target for post-Seed/pre-Series A SaaS startups to aim for.

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Reactivation MRR is the monthly revenue earned from previously churned or canceled subscriptions that are reactivated during the month.

An obvious way to boost your net MRR growth rate is to increase the number of customers (duh!). But other than that, you can do these things to increase your MRR growth rate:

Expansion Monthly Recurring Revenue (Expansion MRR) is the additional monthly recurring revenue generated month-on-month from your existing customers. It doesn’t include new MRR acquired from your new customers.

While there are no definitive benchmarks for the net MRR growth rate, there are some guidelines that SaaS businesses in different stages of growth can keep in mind. Let’s take a look at what these experts have to say:

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An increase in the expansion revenue contributes to MRR growth with very little added cost. You can increase your expansion MRR by the means of:

Let’s assume that your net MRR for January is $1000. In the month of February, there was $800 of new MRR addition, $400 added from existing subscription upgrades, and $100 of reactivation MRR. However, there was $200 of customer churn.

Net MRR Growth considers new revenue, expansions, and contractions (downgrading and cancellations). There are three key factors to ensure overall profitability — minimize MRR churn rate, drive upgrades from existing customers, and add new paying customers. Net MRR Growth shows you how fast your SaaS business is growing.

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According to Jason Lemkin (Founder, SaaStr), SaaS companies should have the potential to go from $1m- $100m in ARR in 7-10 years. He goes on to say >=20% growth MoM is an outlier, but possible. Most SaaS companies fall under 10-15%.

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For example, notice that the Net MRR trend allows you to spot the shrinking new MRR or an uptick in cancellations or paused MRR.

On the other hand, you have involuntary churn. This occurs when customers are churning due to payment failures and card declines. It’s important to have dunning mechanisms and smart retries in place to mitigate that.

To summarize, the net MRR growth rate is an important metric to track the growth of your SaaS company. It depends on the new MRR, expansion MRR, and contraction MRR. A Net MRR growth rate of 10-20% is said to be good by the industry experts. To boost your MRR: