What is MRR Churn? Formula, Benchmarks, and Importance in SaaS
What is MRR churn?
Monthly recurring revenue (MRR) churn is a measure of a company's total MRR losses over a set period of time. MRR churn is calculated by adding up all recurring revenue losses due to customer churn and subtracting any revenue gains due to upgrades, cross-sells, and new customer acquisition. Though "monthly" is right there in the metric's name, companies can use the same formula to calculate annual recurring revenue (ARR) churn as well. Whichever time period you choose, MRR churn is an important metric to track, providing insights into customer retention and serving as a benchmark that you can compare to the average revenue KPIs of other companies in your industry.
As with all SaaS metrics, there is neither a firm nor well-established method for the calculation of MRR Churn. It can be an absolute number, such as $3,500 of MRR churned, or a relative churn rate, like 4%.
MRR churn isn’t typically calculated using true GAAP reportable revenue, but rather a number representative of the recurring revenue attributed to a subscription, MRR. There are many ways to calculate MRR, and those in of themselves will not usually lead to significant variance in the core MRR numbers. However, there can be significant variance in the MRR churn number due to the inclusion or exclusion of upgrades/up-sells and downgrades/down-sizing (what we respectively call “expansion” and “contraction”). This is especially true for businesses using the “land and expand” model, where up-selling is a critical component of the overall business growth strategy.
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