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Recurring Revenue Rate

by | Aug 23, 2021 | Article, Renewal, Retain, Retention

Recurring Revenue Rate provides an indication of how much recurring relationship value you are retaining, growing or losing. It’s a crucial metric of how well your Support organization is reaping the benefits of the subscription model. Here’s how to calculate recurring revenue rate.

What is Recurring Revenue Rate?

Recurring Revenue Rate indicates the percent change in the amount of recurring recurring revenue at the end of a specified period compared with the recurring revenue at the beginning of the same period.

Support and Success leaders can apply recurring revenue rate to a specific timeframe (e.g. quarterly or annually), or to tracking Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR). It’s an essential metric of the financial health of recurring revenue relationships such as service contracts and subscriptions.

(An important note: Unlike Contract Renewal Rate, where 100% is the maximum performance level, recurring revenue rate can exceed 100% —  indicating that the value of an existing relationship, or the net value of all recurring relationships, has increase from the previous period.)

How to calculate Recurring Revenue Rate

The formula is a simple ratio:

Recurring Revenue Rate = Recurring Revenue at End of Term / Recurring Revenue at Beginning of Term

Let’s apply it to a very basic example, calculating the recurring revenue rate for Q1:

Recurring Revenue Beginning Q1 = $100

+ Recurring Revenue Added in Q1 = $50 ($45 from new customers + $5 from expansion of existing relationships)

Recurring Revenue Lost in Q1 = $30 ($25 due to customer churn + $5 due to downgrade of existing relationships)

 

Recurring Revenue End Q1 = $120

 

Recurring Revenue Rate = 120% (20% growth)

How effectively are you managing and maximizing recurring revenue?

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