Gross MRR Churn Rate vs Net MRR Churn Rate

Gross MRR Churn Rate and Net MRR Churn Rate both measure revenue loss in subscription businesses, but they approach this measurement from different angles. Gross MRR Churn Rate calculates the percentage of monthly recurring revenue lost from cancellations and downgrades, without accounting for any offsetting growth from existing customers. It's a straightforward measure of revenue attrition that reflects the raw loss of business. Net MRR Churn Rate, however, factors in expansion revenue from existing customers (through upsells, cross-sells, and usage increases) alongside the lost revenue. This comprehensive metric can actually be negative when expansion revenue exceeds lost revenue, indicating that a company is growing its revenue from the existing customer base even without acquiring new customers.

Consider a SaaS company that lost $10,000 in monthly recurring revenue from cancellations and downgrades, while generating $12,000 in expansion revenue from existing customers, out of a total MRR base of $100,000. Its Gross MRR Churn Rate would be 10%, highlighting concerning revenue attrition that requires attention. However, its Net MRR Churn Rate would be -2%, revealing that despite those losses, the business is actually growing organically through its existing customer relationships. Use Gross MRR Churn when you need unvarnished visibility into customer loss patterns and retention challenges. Use Net MRR Churn when evaluating overall business health and growth potential, especially when deciding whether to focus resources on customer retention versus acquisition strategies. Companies with low or negative Net MRR Churn can often afford to invest more aggressively in acquisition, knowing their existing customer base continues to grow in value over time.

Gross MRR Churn Rate

Net MRR Churn Rate

What is it?

Gross Monthly Recurring Revenue Churn Rate (Gross MRR Churn Rate) is the percentage of recurring revenue lost due to both cancellation and downgrades. Note that it is common to express this metric as a monthly rate, though it can also be expressed as Gross ARR Churn Rate.

Net Monthly Recurring Revenue (MRR) Churn Rate is the percentage change in MRR due to expansions, cancellations and downgrades. A negative Net MRR Churn Rate occurs when expansions exceed downgrades and cancellations and is a strong positive indicator of company health. This metric is typically expressed as a monthly rate although it can also be an annual rate: Net Annual Recurring Revenue (ARR) Churn Rate.

Formula

ƒ Sum(downgraded MRR + cancelled MRR) / (total MRR at the beginning of the month)
ƒ Sum(downgraded MRR + cancelled MRR - expanded MRR) / (total MRR at the beginning of the month)

Example

For example, if the total MRR churned (downgraded and cancelled) this month was $2000 and the total MRR (measured at the start of the month) is $100,000, then the Gross MRR Churn Rate would be 2%. $2000 (churn for entire month) / $100,000 (MRR as of beginning of month) = 0.02 or 2%

Example A: A company’s MRR is $50,000 with expansions of $7,000 and downgrades and cancellations of $10,000. The Net MRR Churn Rate is ($10,000 - $7,000) / $50,000 = 6.0% Example B: A company’s MRR is $100,000 with expansions of $12,000 and downgrades and cancellations of $7,000. The Net MRR Churn Rate is ($12,000 - $7,000) / $100,000 = -5.0%

Published and updated dates

Date created: Oct 12, 2022

Latest update: Mar 18, 2024

Date created: Oct 12, 2022

Latest update: Oct 12, 2022