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revenue churn

Also called: MRR churn, gross revenue churn

The share of MRR lost in a period to cancellations and downgrades: lost MRR ÷ MRR at the start. It can differ a lot from customer churn when customers pay different amounts.

Revenue churn (MRR churn) is the share of monthly recurring revenue lost during a period to cancellations and downgrades: revenue churn = (churned MRR + contraction MRR) ÷ MRR at the start of the period. It measures money leaving, while customer churn measures people leaving.

The two numbers diverge whenever customers pay different amounts. Losing one large account can mean 1% customer churn and 9% revenue churn; losing many small customers on a discount can mean the opposite. For deciding where to spend effort, revenue churn usually matters more, because it is what shows up in the MRR and, later, in what a buyer will pay for the company.

There are two versions. Gross revenue churn counts only losses and can never go below zero. Net revenue churn subtracts expansion revenue (upgrades, extra locations, price increases on existing customers) from the losses; when expansion is bigger than the losses, net revenue churn turns negative. Report both, so that growth from a few big upgrades doesn't hide a steady leak underneath.

Example

In October GarageDesk starts with an MRR of 34,000 UAH and loses three monthly shops at 600 UAH each: revenue churn = 1,800 / 34,000 ≈ 5.3%, close to the customer churn of 3 / 58 ≈ 5.2%, because most shops pay about the same.

Now suppose GarageDesk had accepted a franchise owner's first offer: 40 shops at 400 UAH on one contract, 16,000 UAH, in a total MRR of 37,400 + 16,000 = 53,400 UAH from 65 paying accounts. If the franchise left a year later, customer churn would be 1 / 65 ≈ 1.5%, but revenue churn 16,000 / 53,400 ≈ 30%.

Common mistakes

  • Reporting only customer churn. When customers pay different amounts, the revenue view can tell a very different story.
  • Hiding losses in a net number. A negative net revenue churn can sit on top of a gross churn that's getting worse.
  • Forgetting downgrades. A customer who moves to a cheaper plan hasn't left, but the lost revenue is real.
  • Mixing the denominators. Use MRR at the start of the period, not at the end.