Using the Subscriptions add-on in Upsales for invoicing and billing? Here's how recurring revenue works. The ARR Insights dashboard is part of the Insights add-on.

This article covers how to know:

• Whether your recurring revenue is increasing or decreasing
• How high is your churn, and how it affects your growth rate
• How cancellations may affect your future churn rate

Key terms

• Annual Recurring Revenue
• Monthly Recurring Revenue
• Expansion
• Contraction
• Churn
• Churn rate
• ARR growth
• ARR growth rate
• How Upsales automagically keeps track of all the above for you

Annual Recurring Revenue (ARR)

ARR is the value of the recurring revenue of a business's term subscriptions normalised for a single calendar year.

Example:

• You have 10 customers each paying you €100 every month
• Your ARR is 10 x €100 x 12 = €12,000

Monthly Recurring Revenue (MRR)

MRR is the same as ARR but on a monthly basis, so the total of all your monthly payments. So in the example above, your MRR is €1,000

Expansion

Increased value from existing customers, such as upsells, add-ons, extra seats. Upsales logs these changes as Upsell.

Contraction

The decreased value of contracts from downsizing/downgrading.

Churn

The total value of customers who stopped subscribing to your service.

In the ARR Insights dashboard, this is calculated as the sum of churned customers AND customers who decreased in contract value. 

Churn rate

Annual percentage rate at which customers stop subscribing. Usually measured within a single calendar year, or a rolling 12 months.

Example

In the above example, the business loses a customer, and drops the contract value of another customer. Churn rate is the sum of these two changes (€1,500) divided by the starting ARR.

 

ARR Growth

Value of all the changes in your ARR during a calendar year. See the example in the next section.

ARR Growth Rate

Annual percentage change of your ARR. 

Example

How Upsales automagically keeps track of all the above for you

Every night, a particular kind of magic happens in your Upsales database. We take a snapshot of your current ARR and save that data. That way you know the ARR from each customer on every date.

Each change is logged on the customer as one of these types: New customer, Upsell, Contraction, Churn, Win-back, Index increase or Currency rate change.

A customer is logged as Churn when their total ARR reaches zero. If one subscription ends while others continue, the change is a Contraction. A churned customer who starts paying again within one year is logged as Win-back. After one year, they are logged as a New customer.

But wait! What if I make a mistake and correct it the day after?

The good news is, we take care of that too. Below are two cases where we clean your data.

1. Changes that cancel out on the same date

If a customer's ARR changes on one date add up to zero, nothing is logged for that date. For example, you end a subscription and start an identical one on the same date. No Churn and no New customer is logged.

2. Removing an end date

If you remove a subscription's end date, or move it later, before the end date has passed, no churn is logged.

If the end date had already passed, the churn stays on the end date. The day you remove the end date, the customer is logged as Win-back. If the customer still had other subscriptions, the two changes are logged as Contraction and Upsell instead.

If you correct the end date within 2 days of saving it, nothing is logged.

Churn vs cancellations

Since the notice of cancellation often arrives long before the expected renewal date, churn imminently becomes a lagging measure - making it difficult to act on.

So churn is neither a fair nor an up-to-date reflection of how your business is going. Received or incoming cancellations, however, is a concurrent performance indicator. It gives you a more accurate insight into how well you’re managing your clients right now. 

How cancellations are logged

A cancellation will be registered when:

• you enter a termination date for an active subscription
• the customer lacks a future subscription (a subscription with a start date in the future).

If you remove the termination date before the subscription expires, the cancellation log will be deleted from the database.