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From its humble roots as an online snowboard shop based in Ottawa, Canada, Shopify has become a giant in the e-commerce industry. As of the third quarter of 2021, it surpassed Amazon for traffic!
What is 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, which would have been impossible for one company working alone.
These industrious developers have even developed apps to calculate, track, and project all metrics for Shopify shops and apps targeted at every imaginable need.
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 seems like 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 customers change pricing tiers, purchase add-ons, or 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.
Real-time MRR metric within Baremetrics
Sign up for the Baremetrics free trial and start monitoring your subscription revenue accurately and easily.
What are growth metrics for?
Collecting, collating, and manipulating data with formulas to present metrics takes a lot of effort. 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 worth it?
Metrics are there to answer simple questions about the health of your business, and you track them over time to ensure you are happy with those answers.
That’s why you need to think hard about your business's nature, strengths, and weaknesses, and where you want to focus your finite resources, and then obsessively track the related metrics.
For example, MRR is great 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 brings 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 for your Shopify Partners App.
How to calculate MRR for Shopify Partner Apps
The first thing you’ll want to note is that MRR is normalized to the month following the revenue recognition principle in accounting. That means if you have both annual and monthly plans, 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, your MRR will increase by $1,200/12 = $100 monthly for 12 months, not $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 multiply your total number of customers 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, but your MRR can change drastically from month to month, with some factors increasing and others decreasing.
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?
What happens if you have an ARPU of $500 and your MRR increases by $1000?
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 three new users, while two users quit, one 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:
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New MRR is the additional MRR from new customers.
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Expansion MRR is the additional MRR from existing customers (also known as an “upgrade MRR”).
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Churned MRR is the MRR lost from cancellations.
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Reactivation MRR is the additional MRR from churned customers who have reactivated their accounts.
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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
Calculating all of your needed revenue, customer, churn, and MRR movement metrics, including all the different types of MRR for Shopify Partner Apps, can be difficult. 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. 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.
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. Remember 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 must teach customers how to use your app and push them to integrate it into their workflows ASAP. Emails pointing out your app's valuable tools 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 you are not charging enough. While $1000/month can be a real sticker shock when seen in the Shopify Partners App Store, these apps can add 10, 100, or 1000 times that value to the customer!
Don’t price based on how much it costs you to build or acquire customers, but on 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. To maximize growth, you must see the drivers of your business growth and anything dragging growth down.
However, MRR is only the start. Once you have all the different MRR components at your fingertips, you can 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 find 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.
Know instantly how your Shopify app is performing, what’s working, what needs improving, and where to focus next.
