Since publishing the original SaaS metics blog series and subsequent SaaS Metrics Guide to SaaS Financial Performance, I’ve received numerous inquiries on various details and hidden gotchas in SaaS metrics implementation. This new series of SaaS Metrics FAQs explores some of these finer SaaS metrics points in a simple Q&A format. In this second post, I examine SaaS MRR churn, a SaaS metric that extends from SaaS customer churn which was covered in the first installment.
SaaS Metrics FAQ #4 | What is MRR Churn?
SaaS MRR churn measures the erosion of SaaS monthly recurring revenue (MRR). Mathematically, the SaaS MRR churn rate is an extension of the SaaS customer churn rate calculated by substituting monthly recurring revenue in place of the number of customers. For example, if your SaaS business has 100 customers representing an MRR base of $1M at the beginning of the year, and 5 customers cancel a total of $100K in MRR during the year, then your annual MRR churn rate is 10%, while your annual customer churn rate is only 5%. The general formula for for SaaS MRR churn can be stated as the amount of MRR cancelled (ΔMRR) per time interval (Δt) divided by the total MRR at the beginning of the interval (MRRtotal).
|SaaS MRR Churn Rate||=||ΔMRRcancelled contracts|
|Δt x MRRtotal|
In the formula above, the Δ is a common math symbol that means change or interval.
SaaS Metrics FAQ #5 | Why Measure MRR Churn?
The simple answer to this question is money. Continue reading "What is MRR Churn? | SaaS Metrics FAQs Part 2"