How to Calculate MRR for Shopify Partner Apps

From its humble roots as an online snowboard shop based in Ottawa, Canada, Shopify has become a giant of the ecommerce industry. As of the third quarter of 2021, it has even surpassed Amazon for traffic!

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What are Shopify Partners?

Perhaps its most unique feature, and a major reason it has experienced so much success, is the Shopify Partner system, where individuals and third-party companies can sell their services or apps, in the so-called micro-SaaS space. 

This system has brought more functionality, better usability, and top-notch customer service, all of which would have been impossible from one company working alone. 

These industrious developers have even developed apps to calculate, track, and project all manner of metrics for Shopify shopkeepers, in addition to apps targeted at every other need imaginable.

But, where do Shopify Partners track the metrics of their app portfolio? 

Baremetrics can calculate MRR for Shopify Partner Apps

One of the most important metrics is monthly recurring revenue (MRR). MRR is the amount of money you bring in monthly from subscriptions. 

On the surface it is a simple concept, but MRR jumps around a lot, and normalizing it into a fair representation of your company’s current financial health isn’t easy. 

This complication can only increase when your customers tend to change pricing tiers, purchase add-ons, or you implement usage-based pricing.

Thankfully, when it comes to calculating MRR for Shopify Partner Apps, along with all of the related metrics, Baremetrics excels. Baremetrics is a business metrics tool that provides 26 metrics about your business, such as MRR, ARR, LTV, ARPU, churn, total customers, and more.

Baremetrics integrates directly with Shopify, so information about your customers is automatically piped into the Baremetrics dashboards.

Sign up for the Baremetrics free trial and start monitoring your subscription revenue accurately and easily.

What are growth metrics for?

It takes a lot of effort to collect, collate, and manipulate data with formulas to present metrics. Then there is all the effort spent interpreting and tracking the metrics over time. It could lead you to ask: What’s the point? Are metrics really worth it? 

Metrics are there to answer simple questions about the health of your business, and you track them over time to make sure you are happy with those answers.

That’s why you need to think hard about the nature of your business, its strengths and weaknesses, and where you want to focus your finite resources and then obsessively track the related metrics. 

For example, MRR is great alone for valuing your company, but it also helps you track your growth trajectory as part of the SaaS quick ratio. 

What is MRR for Shopify Partner Apps?

Monthly recurring revenue (MRR) is how much subscription revenue your app is bringing in over a month. It is one of the core metrics of SaaS and micro-SaaS companies that use a subscription revenue model. 

Along with customer lifetime value (LTV) and customer acquisition cost (CAC), MRR is among the most important metrics to track for your Shopify Partners App. 

How to calculate MRR for Shopify Partner Apps

The first thing you’ll want to take note of is that MRR is normalized to the month following the revenue recognition principle in accounting. That means that, if you have both annual and monthly plans, then a new annual sign up will not spike your MRR as the total contract will be spread across the duration. 

For example, if your annual plan is $1,200, then your MRR will increase by $1,200/12 = $100 every month for 12 months and not by $1,200 in the current month.

Keeping this in mind, let’s get to the math.

The Basic MRR calculation

Calculating your MRR is pretty simple on paper. You just take your total number of customers and multiply it by the average revenue per user (ARPU), which is how much your average customer pays for your app monthly.

MRR = Number of Customers × ARPU

Let’s say you have 100 customers. The average customer pays $500 per month. Then, your MRR would be 100 × $500 = $50,000.

This looks simple on paper, but your MRR can change drastically month to month, with some factors increasing and others decreasing your MRR. 

To give you an idea of just how complicated this can get, let’s look at the different types of MRR.

What are the different types of MRR?

If you have an ARPU of $500 and your MRR increases by $1000, what happened? 

At first you might think “I gained two new customers”. Well that makes sense as you gained two times the ARPU, but what if I told you that you actually gained 3 new users, while 2 users quit, 1 downgraded their service plan, and 11 more increased to a more expensive pricing tier?

To understand this, you need to look at each MRR type separately:

• New MRR is the additional MRR from new customers.

• Expansion MRR is the additional MRR from existing customers (also known as an “upgrade MRR”).

• Churned MRR is the MRR lost from cancellations.

• Reactivation MRR is the additional MRR from churned customers who have reactivated their account.

• Contraction MRR is the MRR lost from existing customers due to downgrades.

How do you calculate how much new MRR you have for your Shopify Partner Apps?

As your business grows bigger and more complicated, it becomes necessary to track all the different types of MRR and not just your net new MRR:

Net New MRR = New MRR + Expansion MRR – Churned MRR

Use Baremetrics to calculate MRR for Shopify Partner Apps

It can be difficult to calculate all of your needed revenue, customer, churn, and MRR movement metrics including all the different types of MRR for Shopify Partner Apps. That’s why you should use Baremetrics to get the most out of your data.

Baremetrics monitors subscription revenue for Shopify Partners. Baremetrics can integrate directly with Shopify and pull information about your customers and their behavior into a crystal-clear dashboard.

Baremetrics brings you metrics, dunning, engagement tools, and customer insights. Some of the things Baremetrics monitors are MRR, ARR, LTV, the total number of customers, total expenses, quick ratio, and more.

Sign up for the Baremetrics free trial and start managing your subscription business right.

Key lessons to build the MRR of your Shopify Partner Apps

Here are some lessons that will help you improve the MRR of your Shopify Partner Apps.

1. Keep taking baby steps

Small incremental changes can add up over time. Keep in mind the goal of improving your MRR, and work to add new tools, improve your funnel, or increase your inbound marketing. Just don’t be complacent in your success!

2. Guide new users to your app’s value

Free trials are a great marketing tool, but you need to teach customers how to use your app and push them to integrate it into their workflows asap. Emails that point out the valuable tools in your app and how to use them are a great way to get even more free trials to convert to paying subscriptions.

3. Put the customer first, second, and third

Customers appreciate good service. They want responses to emails, live chats, tweets, etc. as soon as possible. Be available, and make sure your dev team is ready to fix bugs when they are reported, your customer service team has the knowledge to answer questions, and your content team is producing meaningful content to keep customers reading your emails.

4. Focus on the right things

Customers will ask for the moon, but not every requested enhancement needs to be implemented. Keep an eye on which tools are used more and how many users are asking for the same thing. Focus on the most requested and highest value-adding functionalities.

5. Charge according to customer value

We talk a lot about pricing. We also argue regularly that if anything you are not charging enough. While $1000/month can have a real sticker shock when seen in the Shopify Partners App Store, these apps can be adding 10, 100, or 1000 times that value to the customer!

Don’t price based on how much it cost you to build or how much it costs to acquire customers but by how much value you are adding to their shop.

Summary

MRR, net new MRR, and all of the component MRR types are critical metrics to track for every business. Seeing the drivers of your business growth as well as anything dragging growth down is necessary to maximize growth.

However, MRR is only the start. Once you have all the different MRR components at your fingertips, you can start to perform the needed benchmarking with the SaaS quick ratio. 

Knowing how your contracts are expanding or contracting, how many customers are finding your app (and where), and how many customers are churning (and why) is mandatory to be a responsive company. 

Without this information, you can’t guide your developers to build the functionalities your customers want. Focusing on the tools that add the most value will help you push your users into higher pricing tiers.

You need to know where customers are finding you to maximize your marketing plan.

Getting a handle on why customers are churning is needed to reduce voluntary churn and eliminate involuntary churn.

That’s why you should use Baremetrics to monitor your sales data.

Baremetrics makes it easy to collect and visualize all of your sales data. When you have many clients, it can be difficult to calculate your MRR, ARR, LTV, etc.  Baremetrics does all of this for you, and more.

Baremetrics can even monitor your SaaS quick ratio. Integrating this innovative tool can make financial analysis seamless for your SaaS company, and you can start a free trial today.

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