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We apply our learnings in a practice problem related to MRR Churn.
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Earlier in the course, we introduced MRR,
or monthly recurring revenue.
0:01
This is the revenue we get from
customers who are paying us monthly.
0:06
How much customers pay us each
month can depend on many factors.
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For example, let's pretend we
are a software company that is used for
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project management.
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We charge our customers a fee based
on the number of active users
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they have each month.
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So take a minute to think about that.
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We are a project management software
company, and we charge our customers
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a per-user fee based on whether or
not the user is active in a given month.
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Go ahead, pause the video, and think
of all the different possibilities for
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the changing amounts billed there.
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Okay, welcome back, so
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let's just talk through some of
the different possibilities here.
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Last month, we charged a customer for
all their active users.
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In the current month,
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we might charge a customer more if
they hired a bunch of new employees.
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Or if in the previous month, they only
had a few teams using our software, but
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this month,
they have a bunch of new projects, and
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thus additional team members
started to use our software.
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Or perhaps it's in reverse, and we are
charging less for the opposite reasons.
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A la the customer had to do a layoff or
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the number of teams using
our software declined.
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This is all customer specific, and will
naturally vary a lot depending on company
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size, age, and to what extent they've
adopted the project management software.
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If we have a lot of
customers of varying sizes,
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the amount of money we can charge
our customers could vary widely.
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Or might not be as noticeable as
we are looking at a large group.
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Okay, let's start walking through
this with a gross churn calculation.
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We know what our existing customers
paid us in MRR last month.
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Some accounts are large and some accounts
are small in terms of what they pay us.
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But we will capture all of them
in our total MRR calculation.
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So whatever they paid us in aggregate
last month is our beginning of month MRR.
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Unfortunately, we had some
customers cancel their accounts.
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So whatever they paid us last month,
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they aren't paying us this month,
we would call that cancelled MRR.
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Let's pretend we had 10
customers that paid us a total
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of $34,500 in MRR last month.
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One is relatively huge and
pays us $10,000 each month.
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Eight are medium sized and, believe it or
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not, they all pay us the same
amount of $3,000 a month.
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And one is small and pays us $500 a month.
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Let's practice some churn calculations.
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Can you tell me what the gross MRR churn
is if we lose two medium sized customers?
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What about just the gross churn?
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What is the gross MRR churn,
if we lose our one big customer?
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The same for just gross churn.
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Go ahead and
work through those calculations, and
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we'll talk through it in our next video.
3:07
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