Net Monthly Recurring Value (MRR) Churn rate is the percentage of total revenue lost due to cancellation and downgraded subscriptions, altered by any added revenue from expansion or upgrades from your existing client base.
Net MRR Churn Rate is a crucial metric for SaaS business because of the following reasons:
To calculate the Net MRR Churn Rate, first, you need to subtract Expansion MRR (New MRR earned because of upgrades) from the total MRR churn (MRR lost because of subscription cancellation and downgrades). Then you need to divide it by the total value of the MRR at the start of the month. Finally, you can convert it into a percentage by multiplying it by 100. Here is the general formula that you can use to calculate Net MRR Churn Rate:
Net MRR Churn Rate = ((Total MRR Churn - Expansion MRR) / Total MRR at the start of the month) * 100
For instance: Suppose a company has a total MRR of $60,000 and some existing clients canceled $4,000 worth of subscriptions. Additionally, the company has an expansion MRR of $2,000. Then the Net MRR Churn Rate would be:
Net MRR Churn rate = (4,000 - 2,000 / 60,000) * 100
Net MRR Churn rate = 3.33 %
Please note that you can also have a negative Net MRR Churn Rate if the expansion MRR exceeds the total MRR churn.
The advantages of the Net MRR Churn Rate are as follows:
The disadvantages of the Net MRR Churn Rate are as follows:
The benchmark for net MRR churn rate varies based on the company's ongoing development phase, for instance (Small-Medium Businesses (SMB), mid-size businesses, and enterprises). Below are some benchmarks for the Gross MRR Churn rate that can help a company to make sense of this metric: