Gross MRR Churn Rate

What is Gross MRR Churn Rate?

Gross Monthly Recurring Value (MRR) Churn rate is the percentage of revenue lost due to customers downgrading or canceling their existing subscriptions. Calculating the inverse of this metric will give you the Gross MRR retention rate that will indicate the revenue retained from month over month. Unlike the Net MRR Churn Rate, which calculates the relative revenue loss of the company, this metric indicates the total revenue loss of the company.

Why is Gross MRR Churn Rate important?

Gross MRR Churn Rate is an important metric for SaaS business because of the following reasons:

  1. The Gross MRR Churn Rate lets the product team emphasize lowering the metric value. It is an essential metric demonstrating how much a product is valued in the market. 
  2. The Gross MRR Churn Rate is important for the operations and finance teams to know how many clients are unsubscribing from the product. This enables them to predict upcoming sales and revenue.

How to calculate Gross MRR Churn Rate?

Gross MRR Churn Rate can be calculated by adding the value of all the canceled contracts for a specific month (MRR churn) and then dividing it by the total value of the MRR at the start of the month. You can convert it into a percentage by multiplying it by 100. Below is the general formula that you can use to calculate Gross MRR Churn Rate:

Gross MRR Churn Rate = (Total MRR churn for a particular month/ Total MRR at the start of the same month) * 100

For instance: Suppose a SaaS company's total MRR is $80,000, and some existing clients canceled $5,000 worth of subscriptions. Then the Gross MRR Churn Rate would be:

Gross MRR Churn rate = (5,000 / 80,000) * 100

Gross MRR Churn rate = 6.25 %

Advantages of Gross MRR Churn Rate:

The advantages of the Gross MRR Churn Rate are as follows:

  1. The metric reflects whether the business targets the right clients and the product's value. 
  2. It indicates how much revenue is lost due to downgrading and cancellations. 

Disadvantages of Gross MRR Churn Rate:

The disadvantages of the Gross MRR Churn Rate are as follows:

  1. Since it is possible to get a negative Net MRR Churn Rate, investors might prefer to assess the Net MRR Churn Rate rather than Gross Net MRR Churn Rate.

Industry Benchmarks

The benchmark for churn rate differs depending on the company's development phase. Below are some benchmarks for the Gross MRR Churn rate that can help a company to make sense of this metric:

  1. For Small-Medium Businesses (SMB), the monthly Gross MRR Churn rate could range between 3-7 percent, and the annual Gross MRR Churn rate could range between 31-58 percent.
  2. For mid-market businesses, the monthly Gross MRR Churn rate could range between 1-2 percent, and the annual Gross MRR Churn rate could range between 11-22 percent.
  3. For big enterprises, the monthly Gross MRR Churn rate could range between 0.5-1 percent, and the annual Gross MRR Churn rate could range between 6-10 percent.