How To Calculate Recurring Margin in Freshdesk | Arithmix

Calculating recurring margin is an important aspect of any business that offers subscription-based services. It helps you understand the profitability of your recurring revenue streams and make informed decisions about pricing, promotions, and customer retention. In this article, we will explain what recurring margin is, when it is valuable to calculate it, and how to calculate it.

What Is Recurring Margin?

Recurring margin is the profit you make from your recurring revenue streams after deducting the cost of goods sold (COGS) and other recurring expenses. COGS includes the direct costs associated with producing or delivering your subscription-based services, such as materials, labor, and shipping. Recurring expenses include the ongoing costs of maintaining and supporting your subscription-based services, such as customer service, software licenses, and hosting fees.

Calculating recurring margin helps you understand the true profitability of your subscription-based services and identify areas where you can improve efficiency and reduce costs. It also helps you compare the profitability of different subscription plans and pricing tiers, and make informed decisions about which ones to promote or retire.

When Is It Valuable To Calculate Recurring Margin?

Calculating recurring margin is valuable in any business that offers subscription-based services, especially those with high customer acquisition costs and long customer lifetimes. It helps you understand the true value of your recurring revenue streams and make informed decisions about pricing, promotions, and customer retention.

For example, if you offer a subscription-based software service, calculating recurring margin can help you identify which pricing tiers are most profitable and which ones are not. It can also help you identify which features are most valuable to your customers and which ones are not, and make informed decisions about which ones to invest in or retire.

How To Calculate Recurring Margin

To calculate recurring margin, you need to know your recurring revenue, COGS, and recurring expenses. Recurring revenue is the total revenue you receive from your subscription-based services on a recurring basis, such as monthly or annually. COGS is the total cost of producing or delivering your subscription-based services, including materials, labor, and shipping. Recurring expenses are the ongoing costs of maintaining and supporting your subscription-based services, such as customer service, software licenses, and hosting fees.

Once you have these numbers, you can calculate your recurring margin using the following formula:

Recurring Margin = (Recurring Revenue - COGS - Recurring Expenses) / Recurring Revenue

For example, if your recurring revenue is $10,000 per month, your COGS is $3,000 per month, and your recurring expenses are $2,000 per month, your recurring margin would be:

Recurring Margin = ($10,000 - $3,000 - $2,000) / $10,000 = 50%

This means that for every dollar of recurring revenue you generate, you make 50 cents of profit after deducting your COGS and recurring expenses.

Calculating recurring margin is an important aspect of any business that offers subscription-based services. It helps you understand the true profitability of your recurring revenue streams and make informed decisions about pricing, promotions, and customer retention. By following the steps outlined in this article, you can easily calculate your recurring margin and use it to improve the profitability of your subscription-based services.

How Do You Calculate Recurring Margin in Freshdesk

Freshdesk itself isn’t naturally geared towards letting you calculate complex metrics like Recurring Margin. As an alternative, teams typically use products like Arithmix to import data from Freshdesk and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Freshdesk, combine it with data from other systems, and create calculations like Recurring Margin.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Recurring Margin in Arithmix

Calculating metrics like Recurring Margin is simple in Arithmix. Once you've created your free account, you’ll be able to import your Freshdesk data, and use it to create natural language formulas for metrics like Recurring Margin.

Arithmix is designed to give you the power to build any calculations you want on top of your Freshdesk data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.