Recurring Revenue Rate
The amount of recurring revenue a company receives may increase, stay the same, or decline for a given period. Recurring Revenue Rate indicates the percent change in the amount of recurring revenue at the end of a specified period compared to the recurring revenue at the beginning of the same period.
Recurring Revenue Rate
Recurring Revenue Rate provides an indication of how much recurring relationship value has been retained, grown or been lost.
Recurring Revenue Rate can be applied to a specific timeframe (e.g. quarterly, annually, etc.) or applied to tracking Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR). This is critical for tracking the financial health of recurring revenue relationships such as service contracts and subscriptions.
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.
For Period = Q1
Recurring Revenue Rate = Recurring Revenue at End of Term / Recurring Revenue at Beginning of Term
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)
Net Recurring Revenue is a comprehensive indicator that reveals the extent to which you are retaining, expanding and growing customer relationship value. Examining the specific underlying elements that contribute to the calculation of Net Recurring Revenue provides the necessary insights to identify the root causes of churn, attrition and contraction. In addition, examining the reasons for revenue growth presents opportunities to embrace and expand practices that encourage expansion of relationship value.
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