Scaling ARR and MRR: What Should Sports Tech Companies Consider?
The sports industry is very unique in the sense that it has historically been fueled, cycle after cycle, by the growth of TV rights. As seen throughout the leagues in Europe, this business model has reached a glass ceiling, and organisations have had to start looking at other revenue sources to continue growing.
Sports technology and private investments within it offer sports organisations growth opportunities around media consumption, international growth, ticketing strategy, user experience and more. However, the only metric a private investment is evaluated on is its capacity to create a return on investment with the highest multiple in the shortest amount of time. In this context, some of the indicators a sports tech company should showcase are annual and monthly recurring revenue. These two ‘metrics’ or statements are responsible for indicating not just the present welfare of a company but also its future trajectory.
In this article written by our Chief Executive Officer, Samuel Westberg, we dive into the intricacies of ARR and MRR generation within the sports tech industry, what the methodologies leading to success are, and how tech companies can navigate through competition, investor scrutiny and market dynamics to emerge successful.
MRR vs ARR - What should be your focus and why?
Before diving into what you must focus on, it is important to understand the key differences between the two based on multiple factors:
Evidently, the biggest difference between the two is the timeframe of calculation. ARR provides “the big picture” estimated for yearly revenue, whilst MRR provides a short-term overview of your situation. MRR is interesting to see the variation of your revenue on a monthly basis and how to solve for months with less activity. For an early-stage start-up, it is also fundamental to understand growth granularly and as an incentive to motivate revenue teams. ARR remains the major metric for setting up goals at a company level and with a bit of a longer-term vision.
The reason? Early-stage startups constantly evolve, adapting to market realities, dynamics and trends. Assessing MRR is fundamental for short-term planning and measuring the impact of recent changes. More importantly, tech companies seeking external financing from venture capitalists or investors must pay close attention to their MRR. But what do investors really evaluate before making the crucial decision to fund your venture?
High MRR often correlates with a solid customer base but doesn't necessarily mean satisfied customers. Investors consider metrics like Customer Retention Rate, Net Promoter Score (NPS), and customer feedback alongside revenue figures. Positive customer satisfaction indicators demonstrate that a product or service meets market needs, crucial for long-term sustainability and growth. Additionally, MRR provides insights into financial health and growth trajectory, aiding informed decisions on resource allocation, pricing, and product development.
Investors value companies and deem them stable, which leverage MRR data effectively for strategic decision-making and maximising ROI. Consistent MRR indicates business stability, showcasing reliable revenue streams and the ability to generate recurring income, reducing investment risk. Ultimately, a clear vision for using investments to accelerate MRR growth, whether through scaling sales and marketing, product innovation, or market expansion, is essential to attract funding and increase company valuation.
On the other hand, ARR impacts strategic decisions the company takes at the top level. It also helps determine product-market fit and plan for new product launches.
Predicting revenue is invaluable for strategic planning and resource allocation, allowing companies to forecast cash flow, budget for expenses, and make informed decisions about hiring, marketing, and product development. ARR is a crucial component in determining a tech company's valuation, especially for subscription-based businesses. A high ARR indicates strong revenue-generating potential, commanding a higher valuation, while consistent ARR growth signals a healthy, scalable business model. In conjunction, a company's ability to acquire new customers, expand within existing accounts, and increase recurring revenue over time is also indicated by ARR.
Investors highly value predictable revenue streams as they reduce uncertainty and enhance the company's ability to execute growth strategies effectively.
Furthermore, ARR reflects the effectiveness of a company's product-market fit and pricing strategy. High ARR indicates that products or services resonate with customers and deliver sufficient value to justify recurring payments. Analysing ARR data helps identify trends in customer preferences, usage patterns, and willingness to pay, allowing companies to refine their offerings and pricing models to maximise revenue and customer satisfaction.
Important Considerations to Scale your MRR
Methodologies Leading to Success:
Implementing Effective Customer Retention Strategies :
Evidently, retaining your customers is fundamental to achieving short-term or long-term success. It is more expensive to sign new customers than to retain existing ones. As a business owner or a software solution whose product requires constant feedback and monitoring for phased evolution, it is important to establish certain direct communication lines with customers for regular sync/catch-ups related to your product. This builds trust and loyalty, not just for the solution in question but to establish a rapport with your company as a whole.
Additionally, it is equally important to offer a personalised service to your customers. If each of your clients is made to go through a generic support protocol, it makes them lose the essence of importance and may be perceived as a lack of “after-sales” support, which goes a long way in the infinite sales cycle loop. Lastly, taking the initiative to ask for feedback periodically indicates your commitment to offering a good service. However, the service doesn’t end here. Acting on this feedback and making necessary changes to improve the experience is a fundamental step in customer retention and potentially even upselling existing contracts.
Increasing Customer Acquisition:
There is a lot of depth in terms of what can and must be done to increase client acquisition between all the sales efforts (outbound campaigns, inbound campaigns, business team structure, etc.) and the marketing angles (content marketing, product marketing, field marketing, SEO, etc.). We picked these two areas of focus, inbound strategy and your sales outbound strategy, to delve further into :
Inbound: Speak to different user personas visiting your website. A SaaS model platform should be able to catch the interest of Business teams to understand the financial benefit, Product Managers to explore ways in which the tech can solve a particular problem, CTOs with good, high-quality tech documentation and eventually, marketing teams with relevant content pieces around your technology.
Understand which of those user personas you are looking to convince the most. If it’s the business team, you will focus on client testimonials, showcasing metrics and existing partners. If you want to adopt a pure SAAS approach for your outreach, you will put forward all the documentation surrounding your tech and its ease of implementation. Each of those users coming to your platform should be nurtured with tailored communication, and a clear ‘Call to Action’ should be put in place for all audience types, which would vary a lot.
Outbound: For an outbound sales strategy, we could go in many directions, from SDR to event booths. One thing that I see as fundamental is to see how to build your team. Apart from the necessary sales training and establishment of processes for your staff, having a regional approach to remove cultural and language barriers is essential to the success of a solution. Having a variety of personalities complementing one another within a team is also important. Cover those two elements, and your success rate will grow.
While on the topic of scalability, there’s always room to grow for your sales efforts. Once the fundamentals (mentioned above) of your sales strategy are set up, certain strategic partnerships with aligned businesses can be explored. Thereafter, your product can benefit from cross-promotion conducted by your potential partner.
Ultimately, be remembered and be yourself. I like to say that nobody likes robots, and making an impression and having a personality in your job is essential. People work with technologies, but people also work with other people, and it is crucial to do your best for your clients, who would prefer to see you reaching out as a pleasure versus a burden.
Model your growth:
Chalking out your path to success becomes relatively more straightforward when you have a destination (objective) in mind, at least on paper. Modelling or projecting your growth trajectory provides you with an indicator of how to achieve your goals in the short term. Having checkpoints along the way and regular objectives to achieve has proven efficient in many SAAS model companies to maintain short-term objectives alongside long-term ones.
Important Considerations to Scale your MRR
Navigating the Turbulence of Competition
Everybody looks at sports, everybody wants to work in sports, and investors are excited to invest their money in sports. This means that it is a highly competitive market and that it’s hard to find a niche with high margins and such a differentiator element, so competition can’t come in and break market prices because they can lose money for some time. Rights holders in the sports industry are rarely loyal as they either don’t have to be, the temptation elsewhere is too big, or they have been locked by providers in the past.
In that regard, I think it is key for any sports tech company to:
Have a reliable product: Reliability is the biggest factor in customer satisfaction. A product that solves an issue and never causes any problems is highly valued.
Grow personal relationships: You work with tech, but you also work with people, and you usually spend a lot of time with these people. You want people to be excited to work and talk to you as much as possible.
Keep innovating perpetually: The moment you rely on your market position to stop innovating and look behind, your tech stack gets old, and you leave room for new customers to grab some market shares and tell the story they want.
Give a fair price: Too high margins on your product can prove to be counterproductive at some point or another. Transparency is key, and helping organisations understand what they are paying for is very helpful.
Listen to the market: Don’t get stuck with your product ideal - listening to the market and providing feedback to the product team will be essential to making the rational calls for the growth of your organisation and maintaining the gap with competition.
Conclusion:
Ultimately, each SAAS company is unique in its own way and makes decisions based on that unique element. The determining factors could be the target market, company size, product specificities and more. Most of these have been discussed periodically throughout the course of this blog piece, and close to all companies track both the MRR and ARR to get the health pulse of their company in different ways.
Despite the evident importance of these metrics, the pandemic and higher interest rates have shifted investor focus towards the bottom line rather than solely the top line. Therefore, growing and sustaining your revenues is crucial, but equally important is managing your burn rate (churn rate) and associated costs. It is no longer just about pure growth; profitability is now a key concern and the way forward
At LaSource, we have developed a good understanding of what it takes to grow your business, especially in the EMEA market, bypassing some of the rabbit holes you can dig for yourself by setting up an office too fast or making decisions that are too centralised. We help organisations penetrate a market, grow it, and then hand the keys back once it’s time to internalise the team and strategy.
Hitting quarterly objectives and looking at MRR is a fundamental part of the work we do with companies penetrating a new market, but looking at the ARR as we head out is probably the most important metric.