Determining the success of your recurring revenue requires a different set of metrics for measurement. Rather than focusing on individual sales transactions, the emphasis shifts to measures of future recurring revenue streams and customer health over the lifetime of the customer relationship. These metrics include customer health, retention, and lifetime value to monitor the strength of customer relationships, customer behavior and usage patterns, the value of recurring revenue streams and contracts, and the efficiency of sales and marketing efforts at generating recurring revenue streams.
To be successful, recurring revenue businesses need metrics that allow them to understand the dynamics of customer relationships and the impact of their recurring revenue streams on current and future revenue. While the traditional sales model focuses on generating profitable, high-margin sales transactions, recurring revenue focuses on acquiring and retaining customers and growing the value of customer relationships over time.
It’s evident that these systems require a different set of metrics, but the exact metrics for measurement are still in debate. Analysts and solution vendors have varying opinions on how to measure recurring revenue performance and the meaning of individual metrics, but have some consensus on the following four categories:
- Accounting for recurring revenue sales
- Strength/health of customer relationships
- Customer behavior patterns
- Efficiency of sales and marketing investments.
There are 10 metrics that give visibility to the performance of your business in the four categories, from monthly recurring revenue (MRR) to customer retention/churn rates to customer lifetime value (CLV). An understanding of these metrics will provide you with the formulas needed to ensure solid recurring revenue performance.
The move from a traditional, transaction-based sales model to a modern, recurring revenue model requires new metrics to measure success. The No BS Guide to Recurring Revenue Success will help you identify the appropriate measurements for the success of your business strategy and implement the necessary analytics capabilities. Download the guide today and get started on your business transformation.