.png)
Estd 4.22.2023
PLG companies need to strike a balance between the two approaches rather than choosing one exclusively.
Our book, Price to Scale, explains that while monthly recurring revenue (MRR) can be a great indicator of organic adoption and product engagement—especially important for PLG models—a sole focus on MRR may not capture the full picture. In Chapter 159, we highlight that traditional metrics like ARR and MRR might fall short when applied to more dynamic, usage-based or product-led pricing models. Instead, it becomes crucial to redefine what “recurring” means within your specific context and consider alternative metrics, such as trailing spend, Net Revenue Retention (NRR), and Customer Acquisition Cost (CAC).
Key points include:
• Monthly metrics often provide a rapid feedback loop on customer engagement, a core indicator for PLG companies.
• Annual commitments, on the other hand, can offer greater financial predictability and customer commitment, which might be important as your user base scales.
• The decision isn’t binary. As discussed in Price to Scale, companies should evaluate their growth objectives, customer behavior, and market dynamics to decide if a hybrid approach might be most beneficial—leveraging monthly revenue for growth insights while also incentivizing annual commitments for revenue stability.
In summary, our pricing strategy book, Price to Scale, recommends that PLG companies tailor their metrics to align with their unique business model and market realities rather than defaulting to one method over the other. A thoughtful balance that incorporates both monthly insights and annual commitments is often the most strategic path forward.