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42 may be “The Almighty Answer to the Meaning of Life, the Universe, and Everything”; and according to De La Soul 3 may be the “Magic Number”; but when it comes to SaaS KPIs there’s only one number you need to keep at the front of your mind – 78.
78 is the magic number when it comes to SaaS, to predicting the MRR (monthly recurring revenue) you need to keep hitting month-in-month-out to reach your ARR (annual recurring revenue) goal for the next year. Simply subtract your target ARR from your last year’s ARR and divide by 78. It really is that simple.
So let’s give it a go. Assume your target this year is $1m ARR and that last year you hit $610k ARR. So what new MRR do you need to hit each month to reach your goal?
| 2016 ARR goal is: | $1,000,000 |
| 2015 ARR was: | $610,000 |
| Jump in ARR for 2016: | $390,000 |
| Target MRR | ($1,000,000 – $610,000) / 78
= $5,000 per month
|
Still not convinced? This is how it works. And let’s make the numbers even simpler. Let’s say you get 1 new customer each month who brings you in $1 per month. We’ll also assume that they never churn. The customer that signs up in January is worth $12 to you; the February customer $11 and so on right down to December’s customer who earns you $1. And there you have it, $78!
Can’t be bothered to do the math? Use our SaaS Rule of 78 Calculator below to work out your target MRR!
| Last Years ARR | |
| Your Target ARR | |
| Your Target MRR is |
It’s that simple. Now getting selling!
James Barnes
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