Net MRR churn rate is a valuable metric that helps businesses understand how many customers they lose each month. It’s a key factor in understanding your customer base, and can help you make better decisions about your business. In this post, we’ll explain what net MRR churn rate is, and how you can use it to improve your business. Stay tuned!
What Is Net MRR Churn Rate?
The Net Monthly Recurring Revenue (MRR) Churn Rate is a measure of lost revenue month over month after factoring in any revenue from existing customers. It shows revenue churn minus expansion and is used to track the health of a subscription business.
A high churn rate indicates that the company is losing more customers than it gains, which can lead to a decline in overall revenues. Conversely, a low churn rate indicates that the company is growing its customer base and generating more recurring revenues.
Why Is Net MRR Churn Rate Important For Businesses?
Net MRR Churn Rate is an important metric for businesses to measure the customer retention rate. It helps to identify customer trends, loyalty, and stickiness over time. Additionally, it measures a business’s ability to maintain customer relationships and provides insight into customer satisfaction.
Net MRR Churn Rate also offers valuable data that can inform pricing, customer service, and product development decisions. This metric is especially important for businesses that rely heavily on subscription-based services or models.
By understanding the rate of customer churn, businesses can make more informed decisions on improving customer loyalty, reducing attrition, and increasing retention.
How To Calculate Your Net MRR Churn Rate?
To calculate your Net MRR Churn Rate, simply take your monthly MRR Churn rate and subtract your Expansion MRR from it. Then, divide that number by your total MRR at the start of the month and multiply it by 100. The result will be your Net MRR Churn Rate for that month.
For example, if you had a monthly MRR Churn rate of $1000, Expansion MRR of $200, and total MRR at the start of the month was $10,000 then your Net MRR Churn Rate would be 0.8%.
Here’s the formula:
[ ($) MRR Churn – ($) Expansion MRR ] / ($) Total MRR at the start of the Month X 100 = (%) Net MRR Churn Rate
You can also calculate this number on a cohort basis instead of monthly, which can be helpful in understanding customer behavior over time. To do this, take your cohort’s total MRR churn rate and subtract the expansion MRR from it. Then, divide that number by the cohort’s total MRR at the start of the period and multiply it by 100. The result will be your Net MRR Churn Rate for that cohort.
For example, if you have a cohort of customers who joined in June and had a total churn rate of 5% with an expansion MRR of 2%, then the Net MRR Churn Rate for that cohort would be 3%.
Here’s the formula:
[ ($) Churn MRR from cohort – ($) Expansion MRR from cohort ] / ($) Total Cohort MRR X 100 = (%) Net MRR Churn Rate for Cohort
By understanding your Net MRR Churn Rate, you can get a clear picture of the health of your business and make informed decisions about how to grow in the future.
Factors That Influence A High Net MRR Churn Rate
When it comes to net MRR churn, a few key factors can lead to a high rate.
Unhappy Customers:
Customers who are unhappy with your product or service may choose to leave and take their business elsewhere. This could be due to poor customer service, inadequate features, or slow response times.
Lack of Engagement:
If customers are not using your product or engaging with it in any meaningful way, then they may be more likely to churn. Keeping users engaged is key to reducing the net MRR churn rate.
Not Taking Action:
It’s important to take action when customers are at risk of churning. This could include proactively reaching out to customers who are showing signs of disengagement, offering discounts or other incentives for continued product use, or providing additional support.
Poor Onboarding:
If your onboarding process is not up to par then customers may become frustrated and choose to leave. Ensuring customers are given clear instructions and an easy way to get started is key.
Poor Retention Strategies:
Retention strategies are essential in keeping customers happy and engaged. Developing a strategy that focuses on customer feedback, offers incentives for continued use, or provides helpful resources can help keep net MRR churn low.
These are just a few factors that can influence net MRR churn. Understanding what these factors are and taking steps to address them can help reduce churn rates and keep customers happy.
Advice from VCs On Net MRR Churn Rate
“MRR churn sucks the blood out of your business. That’s why I think that SaaS companies should work hard to get MRR to 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 A Good Net MRR Churn Rate?
SaaS companies live and die by their Net MRR Churn rate. Why? Because it’s a leading indicator of future growth. If your Net MRR Churn rate is too high, you’re losing more revenue than you’re bringing in each month, which is a recipe for disaster.
So what is a good Net MRR Churn rate? It depends on your business, but typically, you want to see a Net MRR Churn rate of less than 5%. If your Net MRR Churn rate is higher than that, it’s time to take a close look at your business and see where you can improve.
Whether it’s improving your product, your customer service, or your sales and marketing efforts, there are always ways to reduce churn and keep your customers happy. And when you do that, you’ll be well on your way to sustained growth.
Examples Of High And Low Net MRR Churn Rate
Uber is one of the clearest examples of a company with a high net MRR churn rate. As they continue to expand, they have been struggling with customer dissatisfaction and unhappy drivers, leading to high churn levels. The Net MRR churn rate of Uber is currently 12%.
On the other hand, some companies have managed to keep their net MRR churn rate low. Slack is one such company. By focusing on customer feedback and providing a great user experience, they have achieved a Net MRR churn rate of only 1%. This is far lower than the industry average, making them a successful SaaS business.
Strategies To Improve Your Net MRR Churn Rate
Improving your Net MRR Churn Rate can help you increase third-party and internal customer satisfaction, as well as result in improved revenue growth. Here are a few strategies to help you reduce your Net MRR Churn Rate:
Provide an Excellent Customer Experience:
From the start, customers must have a positive experience with your product or service. Ensure enough onboarding and customer support is available to guide customers through any issues.
Customer Feedback:
Regularly check in with your customers for feedback on their experience. This helps you identify potential churn risks and address them accordingly before customers cancel their subscription.
Develop a Loyalty Program:
A loyalty program effectively rewards your customers for sticking with you and encourages them to remain loyal.
Establish an Upsell Process:
An effective upsell process can help increase the customer’s commitment to your product or service, reducing their likelihood of churning. By offering additional features and services related to the current subscription, customers may be more likely to stay.
Provide Incentives:
Give customers extra reasons to stick around, such as discounts or additional features. This could help reduce churn rates and encourage customer loyalty.
Monitor Churn Rate:
Keeping track of your Net MRR Churn Rate can help you identify trends and weaknesses in your services, as well as help you identify high-risk customers.
Utilizing these strategies can improve your Net MRR Churn Rate and increase customer satisfaction, revenue growth, and loyalty.
Wrap Up
Net MRR churn rate is a helpful metric for companies to use to gauge the health of their business. By understanding what net MRR churn rate is and how it can be used, businesses can better assess their current situation and make decisions that will help them improve.