The appendix slides are not part of your core pitch deck. It’s hugely beneficial to prepare them as it allows the founder (or presenter) to have clarity while answering questions. Also, investors like founders who come ready to answer the questions. We work with every client through the appendix slides just like how we work with the core slides. Note: You can have unlimited number of appendix slides. What goes inside your appendix section depends heavily on your startup and your business modal.
If you run a subscription based business or a SaaS company, your monthly recurring revenue (MRR) is the most important metric to include in your pitch deck.
MRR is a way to normalise all your recurring revenue across different packages, plans and billing periods to a single, consistent monthly amount.
It’s a straightforward metric but there are some nuances that you’ll want to take in to consideration depending on your business model. There are many ways to measure your MRR – But, I have found that no matter how you calculate it, the end result should be relatively similar.
How to calculate your MRR?
MRR = # of customers * average billed amount
So, for example, if you have 20 customers paying you $100 per month, you will have a MRR of $2,000.
Another example – Say you have two plans, Plan A ($10) and Plan B ($100). If you have 5 customers paying for Plan A and 10 for Plan B, your MRR will be (5*$10+10*$100)/15 = $70.
Some mistakes to avoid while calculating and stating your MRR:
- Normalise all your revenue to monthly. If you don’t charge your customers monthly, you can just average your yearly price. ($1,200 yearly, normalised to $100 monthly).
- Don’t include one time fee in your MRR. MRR is based on recurring revenues only. If a payment doesn’t automatically recur in perpetuity until a customer decides to stop the service, then it shouldn’t be included in your MRR figure. So, don’t include your one-time migration, set-up fee, etc.
- MRR is not an accounting or financial ratio. It’s strictly used internally to measure the health of your revenue in the future.
- Don’t mislead the investors by stating full price MRR when you have given a 50% off to a customer. Make sure that you use the discounted amount instead of the full amount. Don’t artificially inflate your MRR and lose credibility during your due diligence.
- The customers who are still in trial are not included in your MRR. This is something that new startups like to do, but until you have a solid average for the trial to paid conversion percentage, avoid this.
Net New MRR
“MRR Growth Rate is one of the the top metrics SaaS companies should track because it answers the question ‘How fast is the company growing?’”Tom Tunguz, Partner at Redpoint Ventures
As you present your MRR chart to investors, they typically are more interested in the factors that caused a significant change (spikes or drops) in your MRR compared to the top-level MRR.
So, to show that, we need to introduce 3 new types of MRR that make up Net New MRR.
- New MRR: Additional MRR from new customers.
- Reactivation MRR: Additional MRR from customers reactivating plans with you after cancelling.
- Expansion MRR: Additional MRR from customers who upgraded to a pricier plan. Keep in mind that Expansion MRR can come from up-selling (customers upgrading theirs plans) or cross-selling (customers buying additional products or services).
- Churn MRR: Loss in MRR from customers downgrading or cancelling. Keep in mind that MRR churn is different from customer churn.
Net New MRR = New MRR + Expansion MRR + Reactivation MRR – Churn MRR
I use a line chart to show the top level MRR with the three components that make up the Net New MRR.
What are the investors looking for?
“The ability to accelerate monthly revenues while decreasing monthly burn is the #1 thing I look for in a growth stage business.” –Steve Schlenker, Managing Partner at DN Capital
Investors are looking to see if you know how to grow your New MRR faster than your Churn MRR. A good measure is to make sure that you have 4x New MRR compared to Churn MRR. In other words, if you lost 10 customers, you need to be able to add 40 customers to your revenue.
For early stage startup (if you are less than 6 months in the business), it’s misleading to claim an exponential growth in your MRR as investors know that it’s easy to grow fast in the beginning. So, if you have a MRR forecast with the same exponential growth, investors will challenge you as it’s obviously an overestimation. Make sure that you account for that or risk looking like a sleazy salesman or an immature founder in front of your investors.
Point Nine Capital’s Christoph Janz recommends a sensible thing to do: “In the first 12-24 months or so after launch, plan to get to your target number”, and once you’re past that period, you can deploy a month over month percentage growth target.
Normally an increase of 15% to 45% on a month on month basis is considered as a good MRR growth rate if you are in series B onwards. If you are in pre-seed or seed stage, try to get a MRR growth of +15% to +20%.
Based on my experience assisting subscription based startups to answer questions regarding the MRR, I have prepared some questions that your investors ask based on your MRR graphs:
- What is your most valuable/fastest growing/most churned/profitable plan? Why?
- Which demography/geography brought you the most MRR? Has there been significant changes in this from 12 months ago?
- What marketing channels are contributing to the most expansion/new MRR?
- What’s the payment method of most churn MRR? Is it the problem with the payment method? If not, why are they leaving?
- Did integration with (software, platform name) increase your MRR? How much was the change in % and dollars? How much did you spend to build it? What’s your projected ROI on this?
- How much of this MRR is recognised (or have been paid to you)? Investors want to know this to know that you have a healthy revenue collection process, especially if you are in the enterprise space where the payment cycles can take 90days or more.
The most important question: How are you going to increase your MRR?
There are many ways to do this. Whatever is your plan, make sure you have a good justification for it. Some answers that normally works with investors well include:
- Increase your price for your plans – this is totally fine for SaaS companies to do this as they might have started with a lower price than the value provided. Make sure you know by how much (%) you are increasing and the rationale behind it.
- Ditching the free plan.
- Unbundle your features and introduce it as add-ons.
- Eliminate unlimited plans for future customers.
Further reading on MRR: