https://www.channelfutures.com/wp-content/themes/channelfutures_child/assets/images/logo/footer-new-logo.png
  • Home
  • Technologies
    • Back
    • SDN/SD-WAN
    • Cloud
    • RMM/PSA
    • Security
    • Telephony/UC/Collaboration
    • Cable
    • Mobility & Wireless
    • Fiber/Ethernet
    • Data Centers
    • Backup & Disaster Recovery
    • IoT
    • Desktop
    • Artificial Intelligence
    • Analytics
  • Strategy
    • Back
    • Mergers and Acquisitions
    • Channel Research
    • Business Models
    • Distribution
    • Technology Solutions Brokerages
    • Sales & Marketing
    • Best Practices
    • Vertical Markets
    • Regulation & Compliance
  • MSP 501
    • Back
    • 2022 MSP 501 Rankings
    • 2022 NextGen 101 Rankings
  • Intelligence
    • Back
    • Galleries
    • Podcasts
    • From the Industry
    • Reports/Digital Issues
    • Webinars
    • White Papers
  • Channel Futures TV
  • EMEA
  • Channel Chatter
    • Back
    • People on the Move
    • New/Changing Channel Programs
    • New Products & Services
    • Industry Honors
  • Resources
    • Back
    • Advisory Boards
    • Industry Organizations
    • Our Sponsors
    • Advertise
    • 2023 Editorial Calendar
  • Awards
    • Back
    • 2022 MSP 501
    • Channel Influencers
    • Circle of Excellence
    • DE&I 101
    • Technology Advisor 101 (TA 101)
  • Events
    • Back
    • 2023 Call for Speakers
    • CP Conference & Expo
    • MSP Summit
    • Channel Partners Europe
    • Channel Partners Event Coverage
    • Webinars
    • Industry Events
  • About Us
  • DE&I
Channel Futures
  • NEWSLETTER
  • Home
  • Technologies
    • Back
    • SDN/SD-WAN
    • Cloud
    • RMM/PSA
    • Security
    • Telephony/UC/Collaboration
    • Cable
    • Mobility & Wireless
    • Fiber/Ethernet
    • Data Centers
    • Backup & Disaster Recovery
    • IoT
    • Desktop
    • Artificial Intelligence
    • Analytics
  • Strategy
    • Back
    • Mergers and Acquisitions
    • Channel Research
    • Business Models
    • Distribution
    • Technology Solutions Brokerages
    • Sales & Marketing
    • Best Practices
    • Vertical Markets
    • Regulation & Compliance
  • MSP 501
    • Back
    • 2022 MSP 501 Rankings
    • 2022 NextGen 101 Rankings
  • Intelligence
    • Back
    • Galleries
    • Podcasts
    • From the Industry
    • Reports/Digital Issues
    • Webinars
    • White Papers
  • Channel Futures TV
  • EMEA
  • Channel Chatter
    • Back
    • People on the Move
    • New/Changing Channel Programs
    • New Products & Services
    • Industry Honors
  • Resources
    • Back
    • Advisory Boards
    • Industry Organizations
    • Our Sponsors
    • Advertise
    • 2023 Editorial Calendar
  • Awards
    • Back
    • 2022 MSP 501
    • Channel Influencers
    • Circle of Excellence
    • DE&I 101
    • Technology Advisor 101 (TA 101)
  • Events
    • Back
    • 2023 Call for Speakers
    • CP Conference & Expo
    • MSP Summit
    • Channel Partners Europe
    • Channel Partners Event Coverage
    • Webinars
    • Industry Events
  • About Us
  • DE&I
    • Newsletter
  • REGISTER
  • MSPs
  • VARs / SIs
  • Agents
  • Cloud Service Providers
  • Channel Partners Events
 Channel Futures

Channel Partners Event Coverage


Revenue down, dollar sign

3 Pitfalls for Monthly Recurring Revenue Businesses

  • Written by Channel
  • March 13, 2016
MRR is great, but you can’t just kick back and watch the cash roll in.

Adam EdwardsMost people don’t get all hot and bothered by accounting terms, but monthly recurring revenue, or MRR, is a sizzling topic. Who doesn’t want “mailbox money” that just shows up month after month? Valuations for MRR business models are enormous, and with customer preferences moving toward subscription models, the shift to MRR will continue to increase.

Unfortunately, a move to MRR has a few pitfalls which, if not understood, can destroy a business. If you’re managing or starting an MRR business, you need to recognize problems and know how to cope.

Pitfall 1: Fast Growth in MRR

Fast growth sounds great, but in a monthly recurring revenue business, it can kill you. Businesses fail because they run out of cash. Got a great idea, product, people and culture? Without cash, none of it matters.

With cash, a business can continue to build, refine and grow. The challenge of MRR is the cash-spend to acquire customers comes first, well in advance of the revenues, which come later in small pieces over many months. That means a company needs to understand its Cost to Acquire a Customer (“CAC”) regarding cash and also understand the timing of revenues from that customer to pay back the CAC (“Payback Period”) also regarding cash.

It’s easier than it sounds. Take the expenses to acquire customers for a single month and divide by the number of customers acquired, and you have your CAC. Next, figure out the length of time it takes cash receipts from each customer to pay back the CAC, and you know your Payback Period. This should let you know how quickly you can safely acquire customers with the cash you have available.

Pitfall 2: Undervaluing Customers

It’s easy to underestimate the value of a customer in a monthly recurring revenue business. I believe if businesses truly understood the lifetime value (“LTV”) of their customers, they would treat them very differently. LTV is a measure of how much revenue a customer generates over its lifetime, and that number can be increased by upselling the customer, so its monthly payment is higher, or lengthening the life of the customer, so it pays for a longer period.

Sophisticated investors understand that there is enormous lifetime value in a monthly recurring revenue customer, but businesses new to MRR don’t appreciate this — and it shows. Often partners don’t expend the time to retain customers by rewarding them for tenure or by offering them perks similar to those new customers receive. Another mistake is not viewing customer support as a revenue-generating activity.

If your customer LTV could increase by five or 10 times, would you double your effort? Of course you would.

 

Join Telarus co-founder Patrick Oborn at the Channel Partners Conference & Expo on Wed., March 16, as he joins Larry Walsh to discuss Dodging MRR Downsides!

The challenge is knowing how long a customer lifetime can be when the business is still not old enough to have reached that lifetime. Our master agent business is 14 years old, and we still bill customers that started with us in that first year. These are customers who signed with an initial 12- or 24-month commitment! Is the customer lifetime 15 years, 20 years, more?

We don’t know, but our customer LTV continues to increase. Underestimating the potential LTV of a customer means you’ll also limit your investment in retaining and growing customers, thereby losing a huge portion in the value of your MRR business.

Pitfall 3: Delayed Reactions

The insidious nature of a monthly recurring-revenue business is that revenue can continue to grow even as the business is crumbling. For simplicity, consider a company with only a single sale. If the company made this single sale in June 2015, that sale will provision and bill for a maximum of six months during 2015, possibly fewer if the install time is slow. The six months of revenue in 2015 will be a full 12 months of revenue in 2016, creating the illusion that the company is growing from 2015 to 2016. Revenue is a lagging indicator and, therefore, a poor measure of company health.

Protect against this illusion by focusing on sales that yield new MRR each month. New MRR is a much earlier indicator of growth or decline and allows a manager to take action more quickly.

An even better measure of the health of the business is “New to Book,” which I’ll cover in my next column.

Are you managing a monthly recurring revenue business? What issues do you face? I’d love to hear them.

Adam Edwards is a co-founder and chief executive officer of Telarus. His day-to-day responsibilities include all aspects of the business related to strategy and culture. Prior to co-founding Telarus in 2002, Adam was vice president of Finance for Quest Manufacturing. He also served as the VP of Finance for Silicon Film Technologies and was an auditor at KPMG.

 

Tags: Agents Business Models Channel Partners Event Coverage

Most Recent


  • Layoffs
    Storage Giant NetApp to Lay Off 960 Employees, 8% of Workforce
    CEO George Kurian said NetApp isn’t “immune” to the slowdown in IT spending.
  • Mergers acquisitions m&a goldfish crackers
    OpenText to Lay Off 8% of Workforce, Fueled by $5.8 Billion Micro Focus Acquisition
    The cybersecurity firm has more than 14,000 employees in 60 offices worldwide.
  • Making Waves
    7 Channel People Making Waves This Week at 8x8, Intel, Google Cloud, RingCentral, More
    Google, which says it's cutting 12,000 workers, has not indicated how the layoffs impact Google Cloud.
  • INtelisys AMP'd Newport Beach 2023
    Intelisys AMP'd Images: Partners Explore B2B Purchasing Trends, CX, Security Solutions
    Customers "literally don't know" how their own buying journey works, and that's an opportunity for partners.

Leave a comment Cancel reply

-or-

Log in with your Channel Futures account

Alternatively, post a comment by completing the form below:

Your email address will not be published. Required fields are marked *

Related Content

  • people in masks, we miss your face
    Channel Partners Conference & Expo 2021 Preview: We’ve Missed Your Faces!
  • MSP 501 logo
    Don't Wait to Get Ranked Among the Best MSPs in the World
  • Channel Partners circa 2006
    Flashback Friday: Images from the Last 20 Years in the Channel
  • IMB splitting
    5 Hot Stories: Zoom, VMware Challenged in Market Share

Upcoming Events

View all

Channel Partners Conference & Expo

May 1, 2023 - May 4, 2023

Channel Partners Europe

June 13, 2023 - June 14, 2023

Channel Futures Leadership Summit

October 30, 2023 - November 2, 2023

Galleries

View all

Channel People on the Move: Lumen, HPE, Fortinet, Five9, Comcast, More

January 31, 2023

Kaspersky Study: Dark Web Ads Offer Jobs, Careers in Cyber Crime

January 30, 2023

7 Channel People Making Waves This Week at 8×8, Intel, Google Cloud, RingCentral, More

January 27, 2023

Industry Perspectives

View all

5 Things to Look for in a UC Partner

January 31, 2023

The Benefits of Hiring an Investment Bank

January 30, 2023

Make the Most of the Gift of Time in 2023

January 25, 2023

Webinars

View all

Next-Generation MSP Platform: The Building Blocks for Your Business

February 15, 2023

How To Boost Your Business With White-Label UCaaS

February 28, 2023

Security Secrets of the MSP 501: How to Be a Cyber Leader in 2023

December 15, 2022
  • 1

White Papers

View all

Overcoming Your Endpoint Security Limitations with a Skeleton Crew

October 25, 2022

Embracing the Zero Trust Mindset For Endpoints

October 24, 2022

Endpoints are the Destination

October 24, 2022

Channel Futures TV

View all

Coffee with Craig and James Episode 117: Cato Networks, Video Killed the Podcast Stars

Retired Astronaut Capt. Scott Kelly Previews His CP Expo Keynote

December 21, 2022

Fusion Connect Eyes Future with Intrado UC, Managed Network Customers

September 23, 2022

RingCentral Focused on Hybrid Work, Microsoft Teams, Other Integrations

September 23, 2022

Twitter

ChannelFutures

.@NetApp to lay off 8% of its workforce dlvr.it/ShlM8g https://t.co/hEQxHleCIk

January 31, 2023
ChannelFutures

.@radware rolls out enhanced partner program. #cloudsecurity dlvr.it/ShlLdC https://t.co/D2nGNUP8Q4

January 31, 2023
ChannelFutures

Channel #PeopleOnTheMove at @Avant_CCC @HPE_News @CatoNetworks @Sangoma @ooma @Fortinet and more.… twitter.com/i/web/status/1…

January 31, 2023
ChannelFutures

The $5.8 billion deal between @OpenText and @MicroFocus will result in layoffs. OpenText did not say when they will… twitter.com/i/web/status/1…

January 31, 2023
ChannelFutures

Have you checked out the #CPExpo & #MSPSummit Digital #EventBrochure yet? Learn everything you need to know about t… twitter.com/i/web/status/1…

January 31, 2023
ChannelFutures

.@observeAI launches Real-Time AI for agents. When implemented, the #AI can reduce customer frustration by up to 82… twitter.com/i/web/status/1…

January 31, 2023
ChannelFutures

Unified communications (UC) technologies are essential in a continuously evolving digital world. @NEC_corp… twitter.com/i/web/status/1…

January 31, 2023
ChannelFutures

As technology changes the face of business worldwide 🌍, Channel Futures is recognizing these 20 EMEA channel leader… twitter.com/i/web/status/1…

January 31, 2023

MSP 501

The industry's largest and most comprehensive partner awards program.

Newsletters and Updates

Sign up for The Channel Report, Channel Futures Update, MSP 501 Newsletter and more.

Live Channel Events

Get the latest information on the next industry-leading Channel Partners event.

Galleries

Educational slide shows and images from live events.

Media Kit And Advertising

Want to reach our audience? Access our media kit.

DISCOVER MORE FROM INFORMA TECH

  • Channel Partners Events
  • Telecoms.com
  • MSP 501
  • Black Hat
  • IoT World Today
  • Omdia

WORKING WITH US

  • Contact
  • About Us
  • Advertise
  • Newsletter

FOLLOW Channel Futures ON SOCIAL

  • Privacy
  • CCPA: “Do Not Sell My Data”
  • Cookie Policy
  • Terms
Copyright © 2023 Informa PLC. Informa PLC is registered in England and Wales with company number 8860726 whose registered and Head office is 5 Howick Place, London, SW1P 1WG.
This website uses cookies, including third party ones, to allow for analysis of how people use our website in order to improve your experience and our services. By continuing to use our website, you agree to the use of such cookies. Click here for more information on our Cookie Policy and Privacy Policy.
X