Saas KPI: Net MRR Churn Rate
“MRR churn sucks the blood out of your business. That’s why I think that SaaS companies should work very hard to get MRR churn down, as close to zero as possible, or even better achieve negative MRR churn.” — Christoph Janz, co-founder and managing partner at Point Nine Angel VC
What is Net MRR Churn Rate?
Another common SaaS metric, Net Monthly Recurring Revenue (MRR) Churn Rate is the measure of lost revenue month over month (due to cancellations and account downgrades) after factoring in any revenue from existing customers (i.e. upgrades/expansion). It shows revenue churn minus expansion. This is in contrast to Gross MRR Churn Rate that estimates the total loss to the company, not including expansion.
How to calculate Net MRR Churn Rate:
[ ($) MRR Churn — ($) Expansion MRR ] / ($) Total MRR at the start of the Month X 100 = (%) Net MRR Churn Rate
Net MRR Churn Rate is calculated by first subtracting expansion MRR from churn MRR. (Remember that churn includes both cancellations and account downgrades or ‘contractions.’) Then divide the result by the total MRR at the start of the month and multiply by 100 to convert to a percentage. For example, if a company’s total MRR for the month is $50,000 with a churn of $2000 and an account expansion of $800, the net MRR churn rate would be 2.4% for that month.
($2000 — $800) / $50,000 X 100 = 2.4%
It’s possible to end up with a Net Negative MRR Churn Rate. This happens when the expansion MRR for the month exceeds the churn MRR (including cancellations and downgrades). Continuing with our example above, if the total MRR is $50,000 but churn is $1500 and expansion is $2000, then the net (negative) MRR churn rate would be -1%.
Net MRR Churn Rate can also be calculated on a cohort basis instead of monthly. The formula is quite similar to the monthly version — simply change the figures to reflect the duration of the cohort, not a single month. See the adapted calculation below.
[ ($) Churn MRR from cohort — ($) Expansion MRR from cohort ] / ($) Total Cohort MRR X 100 = (%) Net MRR Churn Rate for Cohort
