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We walk through the solutions to the previous video.
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Okay, let's recap our information.
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We had ten customers that paid us a total of $34,500 MMR last month.
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One is relatively huge and pays us 10,000 a month, that's customer 10.
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8 are medium sized and pay us $3,000 a month each.
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And 1 is relatively small, customer 1, and they pay us $500 a month.
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The 4 questions we have are, 1,
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what is the Gross MRR churn is we lose 2 medium sized customers?
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2, what about just the Gross Churn if we lose 2 medium sized customers?
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3, what is the Gross MRR churn if we lose our 1 big customer?
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And finally, 4, what is gross churn, if we lose our 1 big customer?
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So if we lose medium size customers that cancelled MRR as worth
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6,000 to a medium size, so we'll write 6,000 here.
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6,000 divided by our beginning month
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MRR of 34,500 gets us a gross MRR churn of not 0.17,
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it's 17.39%, that's really high.
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Let's look at just our gross churn calculation.
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In this case, we would lose 2 customers
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divided by the 10 at the beginning of the month, and we don't have 20 cents.
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Again, it should be a percentage 20%, that's also high.
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Now let's walk through the big customer example.
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We lose $10,000 of MRR, and we divide that 10,000
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by our beginning of month balance, 34,500.
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And we just gotta format this correctly, 28.99%, sound the alarm bells.
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Let's look at gross churn here.
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Gross churn would be 1 divided by 10, and you got 0.1 is 10%.
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This example illustrates how the calculation
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you use can have a large impact on your understanding of the business.
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Let's introduce a few other dynamics to these calculations,
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specifically contraction and expansion of our customer accounts.
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Remember, we charge our customers based on activity, and
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that can fluctuate month to month.
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So, let's start over and pretend we still have our 10 customers, and
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34,500 in previous month's revenue.
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In this period,
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our large customer with 10,000 in MRR is still sadly going to cancel.
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So we have cancelled MRR of 10,000, and I'm gonna label it just so
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it's a little bit more clear and get these formats sorted.
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Okay, so the large account is still gonna churn 10,000 of cancelled MRR.
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However, we also have one medium customer shrink their account from 3,000 to 2,000.
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This will be known as Contraction MRR, and
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would mean we have a Contraction MRR of $1,000 in this period.
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So I will, do that knock one zero off,
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and type in the Contraction MRR.
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Finally, in addition we have three of our medium accounts increased their
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activity on the software.
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Translating to an increase in what we charge them for
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6K each, going from 3K to 9K.
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That's called Expansion MRR.
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Let's write it in Extension and it's three accounts,
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increasing the account size from 3 to 9k, so that would be $18,000 in Expansion MRR.
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It's not a percentage, and it's not 180,
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there we go, 18,000 Expansion MRR.
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So to recap, you're starting with the beginning month MRR of $34,500.
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We had Cancellation MRR of 10K, we had Contraction MRR of 1K,
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and we had Expansion MRR of 18K.
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Cancellation and contraction are bad, expansion is good.
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So our calculation of Net MRR Churn would be,
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Net MRR Churn = (Cancellation MRR +
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Contraction MRR- Expansion MRR) / BOM MRR.
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So in this situation Net MRR Churn
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is going to be equal to cancellation
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+ contraction- expansion
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divided by beginning month.
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And I missed a parent that are, a formula up here.
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So I'm gonna head, and had that in.
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So in this example, our Net MRR Churn is
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a very superb number of -20.29%.
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When you have negative MRR churn it means the amount of money you're charging your
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existing customer base is growing.
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I have seen people I respect, split up Net MRR Churn in two components.
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A combination of Gross MRR Churn and Net Expansion MRR.
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Where Net Expansion MRR is just the calculation of the Delta between your
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Expansion and Contraction MRR.
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Let's walk through that in this example.
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So we have our Gross MRR Churn,
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our Net Expansion MRR, and then our Net MRR Churn.
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Our Gross MRR Cchurn in this example is 10,000 divided by
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the 34,500 our Canceled MRR, so there's our Gross MRR Churn.
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Then our Net Expansion MRR would be a Contraction MRR-
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the Expansion MRR divided by our beginning of month MRR.
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And our Net MRR would be the Gross MRR Churn + the Net Expansion MRR.
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And you can see you get the same Net MRR number.
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It can be helpful to split out these two churn calculations if, for
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example, you have different teams working on preventing customers from canceling
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versus upselling existing customers.
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It just depends on the situation.
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