Monthly recurring revenue (MRR) is the lifeblood that many companies rely on to survive and succeed in their industry. Especially for B2B services, MRR helps dictate the financial flexibility and strength of your company. However, the key to maintaining a positive MRR is to develop long-term relationships with your clients, and that requires a level of trust that can only be achieved by generating consistent, reliable results. Here is a breakdown of how you can transition to an MRR model and reduce churn for positive long-term results:
1. Optimize your pricing
When transitioning to an MRR model, pricing is one of the most crucial factors in determining your long-term success. The price for your service has to reflect monthly payments on an ongoing basis, so it must be affordable enough for clients to make a long term commitment. However, it must also be high enough for you to maintain profitability, considering the amount of effort it takes to produce results.
With that in mind, consider the results you can consistently deliver for your client with your premier service. When optimizing your pricing, look at the minimum value you can guarantee you will deliver, and base your pricing on those results. In this way, your client pays for the bare minimum delivery. When your results exceed their expectations (and their price point), you will have generated a greater ROI for your client. Clients who consistently see these kinds of results are unlikely to churn, preserving your MRR and presenting the opportunity to upsell.
2. Create opportunities to upsell
Depending on your industry, the cost of acquiring a new client can be as much as five times more expensive than the cost of retaining a client. This also means that losing a client to churn can significantly impact your finances as you both lose out on their MRR and are forced to spend five times as much to replace them. This is why it is so important to minimize churn by consistently delivering results.
Upselling doesn’t mean you are trying to squeeze every dollar out of every client. Instead, it lets you evaluate how you can add greater value to a client’s situation with enhanced services. If they were thrilled with the results you produced at $5000/month, they are more likely to take advantage of additional services and increase their financial commitment to $8000/month, resulting in a $3000/month increase to your MRR without the additional cost of acquiring a new client.
Simply by over-delivering for your clients and presenting them with added value through additional services, you can increase your MRR on a consistent basis. As long as you continue to deliver, your MRR will grow without the need to bring in more leads and close more client deals, which is significantly more expensive than simply upselling an existing client.
3. Find the clients you can help “win big”
The MRR model is dependant on producing consistent results for your clients. If you fail to deliver, more clients will churn and the model becomes unsustainable. With that in mind, it is crucial that you focus your attention on clients you can help “win big.” The greater the results you can generate, the more likely it is that your client signs up for a longer term and takes advantage of upsell opportunities.
This is where a comprehensive customer profile is so important. Understanding who exactly is your perfect customer and targeting your marketing efforts at this sector will allow you to generate greater — and more predictable — results for your clients. Focus your effort on these individuals, as they are more likely to make a long-term commitment and increase their monthly fee.
By winning for your client on a consistent basis — and even exceeding their expectations with a greater ROI than promised — you can minimize monthly churn and successfully maintain your MRR. Once your clients have seen the ROI you can generate for them, your role transitions from a service provider to a consultant. They trust your opinion, and they are happy to follow your direction because of the success you have delivered. This gives you the opportunity to upsell from your premier service to your additional services, which can be tailored to the needs of the client.
4. Streamline and automate your processes
Often, the process of onboarding a new client is one of the most time-consuming and expensive tasks of client acquisition. From system setup to strategy, the most complex work is done in the first few sessions and over the first several months of MRR. Fortunately, once you have established the infrastructure and strategy necessary to succeed for your client, you can maintain your monthly commitment to them with a significantly reduced workload. This is why it is so crucial to eliminate churn and continue to deliver results for long-term clients.
By streamlining your processes and automating as many tasks as possible, you can further reduce the workload necessary to maintain a client once they have already been onboarded. This makes it much easier to deliver the results they need without overwhelming your team, as the bulk of the most difficult work has already been completed. In the long term, this dramatically increases the lifetime value of your customer.
5. Offer annual prepayment discounts
To guarantee your clients stick around for a full year (or other specific term depending on your service cycle), consider offering a discount if they pay in advance. By collecting your fee ahead of time, your clients are more likely to stay with you for the full term, rather than breaching the contract.
However, this method relies on your ability to deliver the results you promised. Once you sign on for long-term contracts, you reputation with each client is at stake. However, long-term clients are much more likely to invest in added services, send you referrals, and forgive minor delays, as they have already established a relationship with you and are often hesitant to abandon that relationship. If you continue to generate positive results based on their investment, the reduced churn, additional MRR, and increased ability to forecast your cash flow based on annual contracts is worth the discount you offer them.
Keep an eye out for our next post where we break down how to identify your ideal customer by creating a comprehensive customer profile.
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