Net MRR churn
What Is Net MRR Churn?
Net monthly revenue retention (MRR) churn is a metric used to measure how much revenue a company gains or loses every month. It is calculated in percentage terms by subtracting expansions — any new customers or add-ons — from the revenue churn rate, which refers to cancellations.
Net MRR churn rates can be both positive and negative. A positive figure represents an overall decline, whereas a negative figure indicates a business in a good position.
This metric should not be confused with the gross MRR churn rate only takes lost revenue into account and does not include expansions.
Why Is Net MRR Churn Important?
Net MRR churn directly correlates with other metrics used to make financial projections, such as the lifetime value of customers and annual recurring revenue. It can be used to spot issues before major losses affect long-term success metrics.
If your churn rates are unacceptable compared to others in your industry, you can start taking steps to resolve problems. Analyzing this data can initiate product improvements, pricing optimization, and more effective marketing campaigns.
How To Calculate Net MRR Churn
Net MRR churn rate is the number of customers that canceled service during a specific period, divided by the number of customers who started service during the same period. The formula below illustrates this:
Net MRR churn rate = (Cancellations + downgrades) - (new sign-ups + upgrades) / total MRR at the start of the month
What Is a Good Net MRR Churn Rate?
There isn’t an industry benchmark for net MRR churn rates. This is because of variations in customer profiles like enterprise solutions versus business-to-consumer models. Some sectors have stickier products too, which adds to the unpredictability.
Ideally, businesses should try to achieve a negative net MRR churn rate. This would be a situation where expansions outweigh churn producing a favorable net increase in total revenue. To illustrate, let’s use the formula above. Say a company’s MRR is $100,000, churn is $5,000, and expansion is $10,000. The calculation would work out as:
($5,000 - $10,000) / $100,000 = -0.05%
Common Pitfalls When Analyzing Net MRR Churn
Companies should use advanced data analytics to track customer behaviors and negate the possibilities of churn wherever possible. Businesses should also try to minimize permanent losses by retargeting customers. Email lists are a good way to keep people in your ecosystem, and promotional pricing is a useful strategy to encourage users to re-subscribe.
Despite this, churn is inevitable. However, companies can seek consolation by requesting leaving customers to fill out feedback forms. Surveys can indicate where the root problem lies. Maybe it’s price, lack of features, or navigational problems — who knows? By finding out exactly why a customer has canceled, businesses can improve their models accordingly.
Short-term metrics such as net MRR churn rates are crucial for fast-growing businesses. They act as a gauge for any unexpected headwinds and display any need to refine business models. Keeping an eye on this data can help your business stay ahead.