What if you scramble due to the inability to manage subscriber loyalty of a growing subscriber base? What if you are new to selling subscriptions on Shopify and see yourself struggle with driving customers?Owing to these two different scenarios for new and existing merchants, the primary goal is only one 一 to improve the subscriber experience. For Shopify subscription box businesses 一 and indeed for every type of subscription model, annual recurring revenue or ARR is a critical performance metric. Enabling you to gauge your subscription health in the annual subscription period, ARR helps you visualize what could be your ideal product offerings according to your subscribers’ needs and preferences.Additionally, it provides you with indicators to decide the perfect rate you need to scale your yearly subscription volume. However, most Shopify merchants could often add to poor subscription experience due mainly to a lack of understanding of how to work with annual recurring revenue that could otherwise help you improve and build more innovative solutions. Let’s take a look at how we can use ARR for the Shopify subscription box business and visualize the subscription health of your product offerings. Table of ContentsWhat is Shopify subscription annual recurring revenue? What is the difference between ARR and MRR? Why is understanding ARR important? How to calculate ARR? What figures do you need to calculate ARR? What you should not include in ARR? What pitfalls to avoid while interpreting ARR? How to optimize ARR for recurring subscription Shopify? Conclusion Build a subscription box ShopifyStruggling to build a box for your recurring orders? Get advanced help from HulkApps Shopify experts to build and manage subscription functionality.Get started now.What is Shopify subscription annual recurring revenue? There could be three exciting ways to show what ARR means. ARR, an acronym for annual recurring revenue, is no different than any other subscription model for the subscription box Shopify, which performs as an essential metric to show how much recurring revenue you expect on an annual subscription. Annual recurring revenue also represents monthly recurring revenue in an annualized version in a single calendar year. ARR could be a predictable revenue stream for a year too. What is the difference between ARR and MRR? ARR and MRR are two different phenomena. Annual recurring revenue never accounts for terms less than a year. The subscription calculations include a year minimum under ARR. Monthly recurring revenue, on the other hand, offers revenue calculations on a monthly basis for shorter-term recurring orders.Why is understanding ARR important?Recurring revenue in the subscription box Shopify is the lifeblood for growth. ARR and MRR 一 are both, therefore, powerful tools to build short and long-term growth trajectories. ARR can ideally support annual revenue goals for subscription businesses with more than $10m ARR. Similarly, monthly recurring revenue or MRR works better with business volume worth less than $10m ARR. As you see long-term goals with ARR, you can measure the health of your Shopify subscription product offerings. There are so many things you can gain insights into your future growth using annual recurring revenue metrics. Visualize Shopify subscription health - Using ARR, you can analyze where is your subscription revenue going down or growing. It is a valuable metric to make better decisions for financing your business, improving efficiency, and compensating lost revenues.Predict revenue - ARR reveals many ways to forecast revenue. You can plan your predictable revenue from potential customers based on monthly subscription cost and duration. In addition, it will be easier to focus on customer churn and lost revenue to plan better resource allocation and product design. Increase revenue - Tracking subscriber journey reveals the pattern of what customers are willing to pay for so that you can utilize cross-sell and upselling techniques in a better that helps you increase revenue. Garner new sources of funds - Monitoring ARR encourages you to lure new investors, including existing ones with predictable sales models and revenue forecasting over a yearly subscription period. This is what helps you draw new investments for the Shopify subscription model. How to calculate ARR?You can thrive with your subscription model as long as you maintain subscriber relationships. Different events, including renewals, subscription upgrades, churn, matter at large. ARR gives you accurate insights into changes that happen with your customer relationship. Keeping all these factors in mind, you can have several ways to calculate ARR. #Method 1: Multiply your monthly recurring revenue by 12. (ARR= MRRx12)#Method 2: Add annual subscription charge of all paying subscribers. (ARR= MRRx12)#Method 3: Multiply quarterly revenue by 4 to calculate ARR. Note: This is applicable to the scenarios that involve different periods of busier sales seasons, making changes to the revenue rate. What figures do you need to calculate ARR?To calculate ARR, there are some important elements that must feature in your calculations. If you conceptualize them wrong, it impacts the whole results. Yearly subscription revenue This is fundamental to ARR calculation. Include into your calculation chart the total annual subscription revenue from your customers. Add-on purchases Look for any additional revenue sources coming from add-on purchases to the ongoing recurring orders. Account upgrades Any new upgrade to the subscription account that increases the annual subscription revenue. Account downgrades Any new downgrades to the recurring orders that impact the annual subscription revenue.Customer churns Any subscriber that cancels their subscription, leading to lost customers and revenue in the annual subscription. What you should not include in ARR?To account for accurate ARR or MRR metrics, elements related to recurring concepts into subscription models are significantly needed. But, inadvertently, you can have non-recurring items into the calculation of annual recurring revenue. If you want to build an accurate subscription strategy in view of ARR, exclude the following items from your list. Account set up fees Non-recurring add-ons One-time purchase cost Credit adjustmentsWhat pitfalls to avoid while interpreting ARR?Considering revenues of the last year Let’s keep this in mind while calculating ARR that we must avoid taking up total revenues from the previous year. ARR is a metric that only determines your future revenue and not what you have earned last year. Assuming ARR as cash ARR is different from cash. For say, if a subscriber has a contract for two years at $60,000, you have two scenarios here. Cash is $60,000.ARR is $30,000. If we mistake ARR for cash, our wrong visualization of cash can impact the bottom line. Missing out discounts When there are discounts or coupons levied upon recurring orders, subscribers are not paying the payment in full. It is important to account for discounts when you calculate annual recurring revenue as you sell subscriptions on Shopify. Overlooking late payments Delinquency happens from your subscribers’ end. It is normal behavior for businesses to overlook late payments. Not including the figure of late payments impacts the accuracy of ARR calculations. One effective way to keep a watch on late payments and get accurate results for ARR is by implementing dunning mechanisms. How to optimize ARR for recurring subscription Shopify? ARR and monthly recurring revenue are powerful metrics that keep your business healthy and competitive. Knowing the right way to optimize ARR and MRR can build more opportunities for your subscription box Shopify business to generate more revenues, and build customer loyalty. Boost your customer acquisition strategy Making your customer acquisition strategy strong enough encourages you to optimize LTV and customer acquisition costs. As you keep CAC low, you can expect more prospective subscribers for your business. Incentivize your subscribers Incentivize your subscribers so that they can feel encouraged to upgrade to higher plans. Upgrades can be highly efficient in expanding your revenue stream. Beef up the subscriber lifetime valueCustomer retention strategy means your Shopify subscription recurring products must align properly with your subscribers’ persona. As long as your subscribers stick around with your services, you know you are building the right product to improve LTV, adding more numbers to your ARR portfolio. Conclusion We are now in the process of understanding how ARR and MRR offer valuable insights into the way to improve our subscription health in the Shopify ecosystem. Annual recurring revenue when done properly propels your actions in different ways to support your objectives to create a lasting impact in your space. This, in turn, enables you to pave the way for strong subscriber retention and connection. Believing this is a helpful piece of advice around ARR, you are well on your mission to make subscriptions more powerful and profitable for your subscribers. For any help with Shopify subscription management, customization, and integration, you can get in touch with HulkApps Shopify experts.