Imagine a hypothetical B2B SaaS company offering a collaborative design tool with a freemium business model. There’s a free version, a paid ‘pro’ version, and a more expensive ‘deluxe’ version available.
The business has 1,000 customers using the free version.
Another 2,500 customers are paying for the ‘pro’ subscription, at $30 per month, generating monthly revenue of $75,000.
A further 1,000 customers pay for the ‘deluxe’ software, at $45 per month. This generates monthly revenue of $45,000.
Monthly recurring revenue is: $75,000 x $45,000 = $120,000
However, on average, the startup loses 150 ‘pro’ customers per month ($4,500), and 100 ‘deluxe’ customers ($4,500).
Each month, on average, 200 customers downgrade from ‘deluxe’ to ‘pro’, representing a loss of $15 per customer ($3,000).
So, average churned revenue is: $4,500 + $4,500 + $3,000 = $12,000.
Typically, however, 180 new customers join the ‘pro’ plan per month ($5,400), another 150 join the ‘deluxe’ plan ($6,750), and 200 upgrade from ‘pro’ to ‘deluxe’ ($3,000).
That equals an average monthly revenue increase of $14,250.
Net monthly revenue increase is: $14,250 - $12,000 = $2,250.
MRR: $120,000 + $2,250 = $122,250
This represents a little below a 2% increase in recurring revenue, month-on-month.
To assess MRR growth over time, calculate monthly net revenue, plus 2%, for each consecutive month.
Monthly Recurring Revenue is a key metric the Tractor Ventures team takes into account when making lending decisions. We have a base requirement of $50,000 in predictable, monthly revenue.
As a guide, Tractor can provide non-dilutive loans up to three times your MRR, based on your business’ needs, and what you plan to use the funding for.
Loans are intended to allow for investment in things like new equipment, key hires, marketing campaigns or even boosting stock reserves – any strategic spending that can help your company grow (and increase MRR) more quickly.
Loans are repaid over a set period, at a set cost, and as a set percentage of revenue generated.
As long as revenue keeps tracking up, founders can also refinance through Tractor as they grow, as many times as they want.
In fact, we’ve funded more than 170 Australian and NZ companies so far, and about a third of those companies have done exactly that.
Try our business business loan calculator to figure out how much you could borrow.
Calculate your startup runway here.
Find out more about Tractor’s non-dilutive loan funding, and how to get started.
We'd love to chat and see whether Tractor is the best partner for you.
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