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We walk through the solutions to the previous video.
Okay, let's recap our information.
0:00
We had ten customers that paid us
a total of $34,500 MMR last month.
0:03
One is relatively huge and pays us
10,000 a month, that's customer 10.
0:10
8 are medium sized and
pay us $3,000 a month each.
0:16
And 1 is relatively small, customer 1,
and they pay us $500 a month.
0:20
The 4 questions we have are, 1,
0:25
what is the Gross MRR churn is we
lose 2 medium sized customers?
0:28
2, what about just the Gross Churn
if we lose 2 medium sized customers?
0:33
3, what is the Gross MRR churn
if we lose our 1 big customer?
0:38
And finally, 4, what is gross churn,
if we lose our 1 big customer?
0:44
So if we lose medium size customers
that cancelled MRR as worth
0:49
6,000 to a medium size, so
we'll write 6,000 here.
0:55
6,000 divided by our beginning month
1:00
MRR of 34,500 gets us a gross
MRR churn of not 0.17,
1:05
it's 17.39%, that's really high.
1:12
Let's look at just our
gross churn calculation.
1:18
In this case, we would lose 2 customers
1:21
divided by the 10 at the beginning of
the month, and we don't have 20 cents.
1:24
Again, it should be a percentage 20%,
that's also high.
1:28
Now let's walk through
the big customer example.
1:34
We lose $10,000 of MRR,
and we divide that 10,000
1:37
by our beginning of month balance, 34,500.
1:43
And we just gotta format this correctly,
28.99%, sound the alarm bells.
1:48
Let's look at gross churn here.
1:54
Gross churn would be 1 divided by 10,
and you got 0.1 is 10%.
1:56
This example illustrates
how the calculation
2:02
you use can have a large impact on
your understanding of the business.
2:05
Let's introduce a few other
dynamics to these calculations,
2:09
specifically contraction and
expansion of our customer accounts.
2:13
Remember, we charge our
customers based on activity, and
2:18
that can fluctuate month to month.
2:21
So, let's start over and pretend we
still have our 10 customers, and
2:23
34,500 in previous month's revenue.
2:27
In this period,
2:30
our large customer with 10,000 in
MRR is still sadly going to cancel.
2:31
So we have cancelled MRR of 10,000,
and I'm gonna label it just so
2:36
it's a little bit more clear and
get these formats sorted.
2:44
Okay, so the large account is still
gonna churn 10,000 of cancelled MRR.
2:50
However, we also have one medium customer
shrink their account from 3,000 to 2,000.
2:56
This will be known as Contraction MRR, and
3:02
would mean we have a Contraction MRR
of $1,000 in this period.
3:05
So I will, do that knock one zero off,
3:10
and type in the Contraction MRR.
3:15
Finally, in addition we have three of
our medium accounts increased their
3:20
activity on the software.
3:25
Translating to an increase
in what we charge them for
3:27
6K each, going from 3K to 9K.
3:31
That's called Expansion MRR.
3:34
Let's write it in Extension and
it's three accounts,
3:37
increasing the account size from 3 to 9k,
so that would be $18,000 in Expansion MRR.
3:42
It's not a percentage, and it's not 180,
3:50
there we go, 18,000 Expansion MRR.
3:55
So to recap, you're starting with
the beginning month MRR of $34,500.
3:59
We had Cancellation MRR of 10K,
we had Contraction MRR of 1K,
4:06
and we had Expansion MRR of 18K.
4:12
Cancellation and contraction are bad,
expansion is good.
4:16
So our calculation of
Net MRR Churn would be,
4:20
Net MRR Churn = (Cancellation MRR +
4:26
Contraction MRR- Expansion MRR) / BOM MRR.
4:30
So in this situation Net MRR Churn
4:36
is going to be equal to cancellation
4:41
+ contraction- expansion
4:47
divided by beginning month.
4:52
And I missed a parent that are,
a formula up here.
4:57
So I'm gonna head, and had that in.
4:58
So in this example, our Net MRR Churn is
5:04
a very superb number of -20.29%.
5:08
When you have negative MRR churn it means
the amount of money you're charging your
5:13
existing customer base is growing.
5:18
I have seen people I respect,
split up Net MRR Churn in two components.
5:21
A combination of Gross MRR Churn and
Net Expansion MRR.
5:26
Where Net Expansion MRR is just
the calculation of the Delta between your
5:31
Expansion and Contraction MRR.
5:35
Let's walk through that in this example.
5:39
So we have our Gross MRR Churn,
5:42
our Net Expansion MRR, and
then our Net MRR Churn.
5:47
Our Gross MRR Cchurn in this
example is 10,000 divided by
5:57
the 34,500 our Canceled MRR, so
there's our Gross MRR Churn.
6:02
Then our Net Expansion MRR
would be a Contraction MRR-
6:08
the Expansion MRR divided by
our beginning of month MRR.
6:17
And our Net MRR would be the Gross
MRR Churn + the Net Expansion MRR.
6:24
And you can see you get
the same Net MRR number.
6:32
It can be helpful to split out these
two churn calculations if, for
6:38
example, you have different teams working
on preventing customers from canceling
6:43
versus upselling existing customers.
6:47
It just depends on the situation.
6:50
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