Churn is a big problem for any business – it’s the percentage of customers who leave within a given period. And when you’re trying to grow a business, churn can be even more devastating. The good news is that there are things you can do to reduce churn and one of them is tracking your MRR churn.
I know from personal experience how important these formulas can be. We used to run them at my last company and they were always incredibly helpful in identifying areas where we could improve our customer service or product offerings. As a result, we were able to significantly reduce our MRR churn and keep more customers happy overall.
If you’re not already tracking churn, I would highly recommend doing so – they could make all the difference for your business!
What is MRR Churn?
MRR churn refers to the monthly recurring revenue that a company loses due to customer cancelations or downgrades. Churn can be a result of many factors, including poor customer service, changes in pricing, or a competitor offering a better product.
Churn is the number one threat to your SaaS business’ success. It’s important to keep track of your MRR churn so you can take action to improve it. You can define MRR churn as an absolute dollar amount or as a percentage, which is more useful and much more actionable to track over time.
The secret to keeping your customers happy? Minimize churn.
Churn is a serious problem for SaaS companies. It’s estimated that 30% of users will cancel their subscription after 12 months. This can have a huge impact on your revenue.
By tracking your MRR churn, you can effectively create marketing strategies that capitalize on compounding interest and increase your revenue.
Knowing your MRR churn and using it to increase or decrease your revenue is a successful strategy employed by many SaaS businesses.
Let’s dive into why churn rate is important, how to measure it, and what you can do to improve it.
Why Is MRR Churn So Important?
It’s important to measure your churn rate in two important ways – both from a product and financial standpoint.
Optimize Your Product to Reduce Churn
Reducing the monthly churn is the main focus of the product team. Churn is an indicator of the value of a product and its features.
If the product team does its job well, the cancellation rate should hit $0 per month.
MRR Churn is Critical to MRR Velocity
Your finance department needs to understand churn to understand how much revenue is lost. This will allow them to forecast your burn rate and plan for future expenses.
Having a clear view of your churn rate over time will help your company hire and scale up when customer acquisition grows.
“Not tracking MRR Churn is like flying a plane with your fuel tank on fire.”
How to Calculate MRR Churn
Calculating MRR churn is quite simple. Here are some equations to help you.
MRR Churn Formula
Take all of the revenue that was lost from canceled and unpaid subscriptions. This will give you the MRR churn for that period.
MRR Churn Rate Formula
To calculate the churn rate, compare the current MRR churn to the previous period. So, if a company loses $1000 in June but earns $10000 in May, then its monthly churn rate is 10%.
What is Included in MRR Churn?
MRR churn is the sum of all of the revenue lost during a given period. There are two ways to lose revenue: active cancellations and delinquent cancellations.
These are the customers who choose not to renew their subscriptions for several reasons. Maybe they no longer need the product or cannot afford it anymore.
These are customers whose credit card charges have failed, so they’re no longer considered active. You typically don’t consider a customer as officially churned until your billing system has attempted to process their card multiple times over a set period.
What Is NOT Included in MRR Churn?
There’s an ongoing debate about whether or not to include expansion and contraction (upgrades and downgrades) in your calculation of monthly recurring revenue.
The problem here is that by masking your churn, you risk not realizing how rapidly your revenue is declining.
When calculating MRR churn, you should not include aspects of MRR that relate to cash leaving your business. Instead, focus on Retention MRR as the key metric for retention revenue. This will give you a more accurate picture of how much money is lost and at what rate, so you can optimize accordingly.
4 Ways to Reduce MRR Churn
Reducing your churn rate is an effective way of strengthening your customer base. Here are some of the main areas you should focus on to lower your churn.
How to optimize churn from price intelligently.
Delinquent Credit Card Dunning
We’ve found that 20% to 40% of MRR churn is due to failed credit cards. This is a great opportunity to reduce churn because it is simply a customer’s expired credit card.
Setting up a system to automatically recover these lost numbers is extremely valuable. You can set up this system with one simple click.
Increase Your Active Users
It can be difficult to keep people using your product regularly, but it’s important to do so to prevent cancellations. Many people cancel their subscription when they see they’re being charged for something they don’t use often. To avoid this, try to hook users into using your product more habitually.
Fix Your Pricing
Our research shows that one of the biggest reasons companies lose clients is because of bad or incorrect prices.
If you’re providing value that aligns with what your buyer personas see in your product or service, you shouldn’t be seeing any customer loss.
Run Churn Loss Surveys and Conversations
There are many possible reasons why people may be abandoning your product or service. You should have a system in place to discover these.
Churn surveys are a great way to figure out why customers are leaving. These polls give your customers the chance to choose their biggest reason for canceling and the least important.
Relative preference campaigns are extremely powerful because they allow you to see which of your services are your biggest opportunities.
Churn is a big problem for any business, but it doesn’t have to be. By running regular churn loss surveys, you can identify areas where your company can improve to reduce customer turnover rates. MRR churn is an important metric to track, and by conducting these surveys regularly, you can ensure that your business is always moving in the right direction.