MRR Churn Example Pt. 13:09 with Michael Watson
We apply our learnings in a practice problem related to MRR Churn.
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. 0:10 For example, let's pretend we are a software company that is used for 0:14 project management. 0:18 We charge our customers a fee based on the number of active users 0:20 they have each month. 0:23 So take a minute to think about that. 0:24 We are a project management software company, and we charge our customers 0:27 a per-user fee based on whether or not the user is active in a given month. 0:32 Go ahead, pause the video, and think of all the different possibilities for 0:39 the changing amounts billed there. 0:43 Okay, welcome back, so 0:46 let's just talk through some of the different possibilities here. 0:48 Last month, we charged a customer for all their active users. 0:52 In the current month, 0:56 we might charge a customer more if they hired a bunch of new employees. 0:57 Or if in the previous month, they only had a few teams using our software, but 1:01 this month, they have a bunch of new projects, and 1:06 thus additional team members started to use our software. 1:09 Or perhaps it's in reverse, and we are charging less for the opposite reasons. 1:12 A la the customer had to do a layoff or 1:17 the number of teams using our software declined. 1:20 This is all customer specific, and will naturally vary a lot depending on company 1:23 size, age, and to what extent they've adopted the project management software. 1:28 If we have a lot of customers of varying sizes, 1:34 the amount of money we can charge our customers could vary widely. 1:38 Or might not be as noticeable as we are looking at a large group. 1:42 Okay, let's start walking through this with a gross churn calculation. 1:47 We know what our existing customers paid us in MRR last month. 1:52 Some accounts ar large and some accounts are small in terms of what they pay us. 1:56 But we will capture all of them in our total MRR calculation. 2:01 So whatever they paid us in aggregate last month is our beginning of month MRR. 2:06 Unfortunately, we had some customers cancel their accounts. 2:13 So whatever they paid us last month, 2:17 they aren't paying us this month, we would call that cancelled MRR. 2:19 Let's pretend we had 10 customers that paid us a total 2:25 of $34,500 in MRR last month. 2:29 One is relatively huge and pays us $10,000 each month. 2:33 Eight are medium sized and, believe it or 2:37 not, they all pay us the same amount of $3,000 a month. 2:39 And one is small and pays us $500 a month. 2:43 Let's practice some churn calculations. 2:47 Can you tell me what the gross MRR churn is if we lose two medium sized customers? 2:50 What about just the gross churn? 2:55 What is the gross MRR churn, if we lose our one big customer? 2:57 The same for just gross churn. 3:02 Go ahead and work through those calculations, and 3:05 we'll talk through it in our next video. 3:07
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