Gross MRR Churn Rate
What is Gross MRR Churn Rate?
Gross Monthly Recurring Revenue (MRR) Churn Rate is the percentage of revenue lost due to cancellation or downgrades. It estimates the total loss to the company, in contrast to Net MRR Churn Rate that calculates the relative loss to the company by subtracting expansion MRR.
The inverse of this metric is Gross MRR Retention Rate which focuses on the revenue retained from month-to-month.
Advice from VCs: Why Gross MRR Churn Rate is critical
“A high churn rate is toxic to any SaaS business.” - Christoph Janz, co-founder and managing partner at Point Nine Angel VC
“Lots of churn definitions out there. It all boils down to a low Gross MRR Churn as this number indicates if a business is healthy. Net MRR can be “improved” by expansion and new logos, but if the Gross MRR Churn is above 1-2% there seems to be an issue with the product or the ROI story.” - Alexander Bruehl, Angel Investor at BM Advisors
How to calculate Gross MRR Churn Rate:
($) Total MRR Churn this month / ($) Total MRR at the start of this month X 100 = (%) Gross MRR Churn Rate
Calculate Gross MRR Churn Rate by dividing the total MRR churn (for the month) by the total MRR (for the month) and then multiply that by 100 to generate a percentage. For example, if the total MRR churn last month was $2000 and the total MRR (measured at the start of the current month) is $50,000, then the Gross MRR Churn Rate would be 4%. The churn being calculated happens after the measure of MRR.
$2000 (churn for all of July) / $50,000 (MRR as of July 1st) x 100 = 4%
Gross MRR Churn Rate can also be calculated on a cohort basis instead of monthly. (A cohort tracks a group of customers who subscribed around the same time. Learn more about cohorts or download a free cohort analysis template.) The formula is quite similar to monthly version - simply change the figures to reflect the duration of the cohort, not a single month. See the adapted calculation below.
($) Total MRR Churn from cohort / ($) Total Cohort MRR X 100 = (%) Gross MRR Churn Rate for Cohort
($) Total MRR Churn from cohort / ($) Total Cohort MRR X 100 = (%) Gross MRR Churn Rate for Cohort
Pros:
In general, churn is a reflection of targeting the right customers and making the product increasingly valuable. Tracking gross churn instead of net churn helps businesses see exactly how much revenue is being lost without ‘sugar coating it’ (i.e. subtracting expansion MRR first). And as a result, gross MRR churn rate more clearly and accurately shows how satisfactory the product is and/or if the business is attracting the right customers.
Cons:
If presenting SaaS metrics to investors, it can be useful to calculate and track Net MRR Churn Rate since it’s possible to have negative churn. (Negative churn happens when the expansion MRR for the month exceeds the churn MRR - learn more here.)
By definition, negative churn is not possible when calculating Gross MRR Churn Rate (lowest possible rate is 0%).
Relevant SaaS Metrics and KPIs:
If you’re adding Gross MRR Churn Rate to your SaaS dashboard, you might want to also consider tracking these related SaaS metrics for context.
Industry Benchmarks
Benchmarks for churn rate vary significantly depending on company stage (SMB, Mid-Market, or Enterprise). There’s also quite a bit of ambiguity around benchmarks for gross vs net churn and customer vs revenue churn. Many of the available benchmarks focus on customer churn instead of revenue churn, but the range for each company segment can still be helpful.
“The maximum viable churn for a company depends on the company’s runway and the rate at which the startup can grow accounts through up-sell and cross-sell. It goes without saying that less churn is always better, but estimating an upper-bound for churn can be helpful for financial modeling and internal prioritization of customer success efforts.” - Tom Tunguz, Partner at Redpoint Ventures
Additional Notes
For a more thorough look at churn rate benchmarks, read this post. Or to learn more about cohort analysis, check out this free template.
