MRR Churn Rate (Gross Revenue Churn)
What is MRR Churn?
MRR Churn Rate is a SaaS metric, and it is divided into gross and net MRR Churn rate for SaaS.
- Gross MRR churn rate measures the monthly revenue that is lost from downgrades and contracts. It allows you to estimate the combined loss to the enterprise excluding expansion.
- Net MRR Churn rate, on the other hand, measures the lost revenue month over month due to account downgrades and contracts lost after also calculating in any income from service expansions or upgrades from your existing users. It allows you to get a clear image of what changes you can expect from your current user base.
Below we’ll be talking and looking at the Gross Revenue churn rate
How is MRR Churn Rate calculated?
Being two different metrics, the gross and net revenue churn formula is a bit different.
For Gross Revenue churn rate we calculate it by summing together the amount of MRR churn and the amount of canceled contracts and then dividing it by MRR at the beginning of the month. Multiply that by one hundred, and you’ll get a percentage. Let’s say that a company’s MRR is $20,000 and users cancel around $2,000 contracts. You get (2,000/20,000) x 100 = 10%
Why Gross revenue churn rate is important?
As is explained above, gross MRR churn is the monthly revenue that’s lost from contacts and downgrades. To put it simply, the higher your gross churn rate, the more money you lose. It all comes down to how low your gross MRR churn is, since it’s the number that shows if an enterprise is healthy. By contrast, net MRR churn can be improved by multiple methods, but if your gross MRR churn is upwards of a number like 2%, there’s probably a problem with your business.
Pros and Cons
Just like everything else in this world, MRR churn has its pros and cons. Let’s start with the negatives.
- CONS: Churn rate may hide some pretty useful information because it combines happy and unhappy customers (Happy = The ones that upgrade, unhappy = the ones that cancel).
- PROS: Keeping track of MRR churn rate is very important in order to understand the health of your SaaS enterprise because it’s one of the bigger hindrances to the growth of your business. If you factor in expansion MRR, churn focuses on sustainability. It would be best if businesses aimed for a negative churn rate in order to optimize the impact of new MRR.
Why would you want or need to measure MRR churn?
The main reason for measuring MRR churn is very simple and that is saving money. MRR churn for SaaS businesses is extremely important, even more so if you run a B2C SaaS business where money is generated through advertising to users and similar. SaaS MRR churn rate is an important financial metric for any SaaS enterprise. MRR metrics can tell you if customer churn is more about the larger or smaller customers, and in addition to that, they highlight important SaaS revenue drivers that other metrics don’t. These two metrics are the upgrades and downgrades.