As a business owner, one thing you will quickly realize is that the revenue coming into your firm is one of the key factors that impact your success. It is therefore important to understand this key performance indicator (KPI). That is, understanding how much is coming in, how much you are losing, and where any sizeable activity is occurring.
We’ve chosen the top revenue KPI that is affecting your firm’s top line, in order to help you get started. Learn what each KPI is, why it’s important, and how you can calculate it.
Revenue KPI: MRR vs Expansion MRR
Monthly recurring revenue (MRR)
MRR = (Rev(p) + Rev(nc)) – Cancellations
What is MRR
MRR tracks the withstand of your firm by bearing in mind your repeating revenue at the end of your past month, added to any other committed revenue this month, less any cancellations from current clients.
Measuring it and why
Your MRR is the essence of your accounting practice and is one of your most crucial metrics to track. It is consistent with determining your continued revenue, which should be the key contributor to your top line. Once a new client is obtained, there is no marketing and ongoing sales expense related to that revenue consistently being received.
MRR in action
If you have 35 clients each paying $1,000 every month, your MRR is $35,000. If the following month you acquire 2 more $1,000 clients, your MRR would grow to $37,000.
MRR = ($35,000 +$2,000) – 0 = $37,000
You can also multiply your MRR by 12 to verify your Annual Recurring Revenue (ARR), which here it would be $444,000.
Separate from your repeat revenue, it is likely that your firm will perform some one-off projects or have once-a-year clients. You can annualize this one-off revenue and add it to your MRR, for key projects or tax services where there is an additional repeating factor. For onboarding or other one-off jobs without a repeating component, you can still do the same, or discount them completely and remove them from your regular reports.
What is it?
Your expansion MRR details any rise in MRR from your current customers. For example, if a client goes from connecting with you just for compliance, to connecting with you for both compliance and also consultative services, this aded revenue would be viewed as expansion MRR.
Why measure expansion MMR?
On top of the services they were already paying for before, it shows how much you are providing in additional services to current clients. It is a lot more economical to grow the services you provide to current clients than to obtain new clients, so knowing this amount will highlight how well or how poorly your firm is at upselling and cross-selling your services. This metric lets you to see the potential and opportunities your firm’s services have to offer.
Expansion MRR in action
Two clients agree to pay an added $500 per month for CFO services, and one more pays an extra $200 per month for tax planning, your Expansion MRR would be $1,200. If you started the month at $37,000, your new MRR would now be $38,200.