Why Using MRR for a Non-Subscription Business is a Mistake

Why do some businesses use metrics that don't fit their model? Metrics like Monthly Recurring Revenue (MRR) have become the gold standard for subscription-based businesses, but what happens when non-subscription businesses try to adopt this metric?

Spoiler alert: it doesn’t end well.

MRR measures the predictable revenue of subscription businesses, providing a clear picture of monthly financial health. For a SaaS company, this metric is invaluable for forecasting growth and stability.

So....

Why MRR Doesn’t Fit Non-Subscription Businesses?

Applying MRR to a non-subscription business is like using a speedometer to measure distance—it simply doesn’t work. Here’s why:

1. Revenue Model Mismatch: Non-subscription businesses often have irregular revenue patterns. Unlike subscription models, where revenue and costs are predictable, non-subscription businesses rely on one-time transactions that can vary greatly month to month.
2. Inaccurate Financial Health Representation: MRR can lead to misleading conclusions about a business’s performance. For instance, a spike in one-time sales can create a false sense of security if viewed through the MRR lens.
3. Focus on Short-Term Gains: Overemphasis on MRR might push businesses to prioritize short-term revenue over sustainable growth. This is particularly problematic when market disruptions occur, making historical data unreliable for future projections."

Instead of MRR, non-subscription businesses should consider metrics that align better with their operations:

• Revenue Growth: Tracks overall growth, providing a clear picture of the business’s financial health over time.
• Customer Lifetime Value (CLV): Understands the total value a customer brings over their lifetime, which is crucial for long-term planning and investment decisions.
• Profit Margins: Ensures long-term viability by focusing on the profitability of each transaction, not just the revenue.
• Sales Velocity: Provides insights into the efficiency of the sales process, helping businesses understand how quickly they can convert prospects into paying customers."

While MRR is great for subscription businesses, non-subscription businesses should avoid it to prevent misaligned strategies and poor decision-making. Assess your metrics and ensure they accurately reflect your business model. What metrics have you found most effective for your non-subscription business?

Using MRR for a non-subscription business doesn’t end well because it leads to several issues.

First, it creates a revenue model mismatch, as non-subscription businesses often have irregular revenue patterns that don’t fit the predictable nature of MRR. This mismatch can result in misleading conclusions about the business’s performance, potentially giving a false sensing of business stability and health, prevention strategy making to address the real opportunities and issues.

Additionally, focusing on MRR might drive short-term revenue strategies over long-term growth and sustainability, particularly problematic during market disruptions where historical data can’t reliably predict future trends. Instead, non-subscription businesses should use metrics better suited to their operational realities, such as revenue growth, customer lifetime value (CLV), profit margins, and sales velocity.

Any comments?