What is Net MRR Churn Rate?
Net Monthly Recurring Revenue (MRR) Churn Rate is the percentage change in MRR due to expansions, cancellations and downgrades. A negative Net MRR Churn Rate occurs when expansions exceed downgrades and cancellations and is a strong positive indicator of company health. This metric is typically expressed as a monthly rate although it can also be an annual rate: Net Annual Recurring Revenue (ARR) Churn Rate.
How to calculate Net MRR Churn Rate
ƒ Sum(downgraded MRR + cancelled MRR - expanded MRR) / (total MRR at the beginning of the month)
What is a good Net MRR Churn Rate benchmark?
The most successful companies have a 'negative' Net Churn Rate, meaning that expansions outweigh downgrades and cancellations (Net MRR Churn of 2% per month, or Net Revenue Retention of 102% per month)
Example A: A company’s MRR is $50,000 with expansions of $7,000 and downgrades and cancellations of $10,000. The Net MRR Churn Rate is
($10,000 - $7,000) / $50,000 = 6.0%
Example B: A company’s MRR is $100,000 with expansions of $12,000 and downgrades and cancellations of $7,000. The Net MRR Churn Rate is
($12,000 - $7,000) / $100,000 = -5.0%
More about this metric
In contrast to Gross MRR Churn Rate, that looks only at downgrades and cancellations, Net MRR Churn Rate reports expansions, downgrades and cancellations.
Net MRR Churn Rate is a critical KPI for subscription-based companies because the cost of retaining a customer is always less than attaining a new one. Additionally, an existing customer is worth future revenue.
Net MRR Churn Rate is calculated by subtracting the expansions from the cancels and downgrades for the month and dividing the result by the total MRR at the start of the month.
Metrics related to Net MRR Churn Rate