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)
If you are an executive at an information technology company you have a lot to think about on a day to day basis, but there are 5 more things that you need to be aware of.
Your service organization is an incredible source of metrics and measurements that describe ongoing interactions with your customers. They can tell you about the top concerns of your customers, the challenges they face using your products and the features they want to see in the future.
Service interactions with customers offer a wealth of insights into how to sustain and grow customer relationship value and create opportunities to differentiate your products. Of all the metrics your service team tracks there are 5 important areas that you should key a close eye on.
If you inventory all the metrics used by your customer-facing organizations – Sales, Marketing and Service – you will find an impressive collection of data elements that describe how you interact with your customers. Marketing metrics describe the ability to reach and influence customers; Sales metrics provide insights into the time and efficiency to book revenue; and Service metrics describe the volume, timeliness, and effectiveness of interacting with them. Add to this, insights provided from customer satisfaction assessment efforts. As an industry we have a lot of customer data, but does it tell us everything we need to know about how to engage and sustain long term profitable relationships?
We have become too dependent on electronic surveys and NPS/CSat scores to tell us that our customers are okay. These are fine indicators but do not always tell us why we lose customers.
Service renewal metrics indicate the level of performance for sustaining service relationships and retaining recurring revenue. Tracking both service contract renewal and recurring revenue retention is essential to help identify the factors that lead to customer and revenue retention and attrition and provide important indicators about the overall state of customer relationship health.
The ability to accurately track the effectiveness of Service Revenue Generation activities is essential to maximizing revenue from new and existing customers. There are three primary opportunities to capture service revenue including the sale of new contracts at the time of the initial product sale (Attach); renewal of existing service contracts (Renew); and as reinstatements (Win Back) of contracts that have been previously cancelled by customers. This article presents a consistent set of metrics and definitions to help companies measure the overall of service sales and renewal policies, programs and personnel.
Use ServiceXRG’s Contract Renewal Assessment tool to get an immediate evaluation of your current renewal practices and performance. The assessment takes just a few minutes and will provide you with a customized performance scorecard with recommendations for improving contract renewals.