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We walk through the solutions to the previous video.

0:00
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.

0:25
The 4 questions we have are, 1,

0:28
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.

1:00
6,000 divided by our beginning month

1:05
MRR of 34,500 gets us a gross MRR churn of not 0.17,

1:12
it's 17.39%, that's really high.

1:18
Let's look at just our gross churn calculation.

1:21
In this case, we would lose 2 customers

1:24
divided by the 10 at the beginning of the month, and we don't have 20 cents.

1:28
Again, it should be a percentage 20%, that's also high.

1:34
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

1:43
by our beginning of month balance, 34,500.

1:48
And we just gotta format this correctly, 28.99%, sound the alarm bells.

1:54
Let's look at gross churn here.

1:56
Gross churn would be 1 divided by 10, and you got 0.1 is 10%.

2:02
This example illustrates how the calculation

2:05
you use can have a large impact on your understanding of the business.

2:09
Let's introduce a few other dynamics to these calculations,

2:13
specifically contraction and expansion of our customer accounts.

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Remember, we charge our customers based on activity, and

2:21
that can fluctuate month to month.

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So, let's start over and pretend we still have our 10 customers, and

2:27
34,500 in previous month's revenue.

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In this period,

2:31
our large customer with 10,000 in MRR is still sadly going to cancel.

2:36
So we have cancelled MRR of 10,000, and I'm gonna label it just so

2:44
it's a little bit more clear and get these formats sorted.

2:50
Okay, so the large account is still gonna churn 10,000 of cancelled MRR.

2:56
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

3:25
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.

3:34
That's called Expansion MRR.

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Let's write it in Extension and it's three accounts,

3:42
increasing the account size from 3 to 9k, so that would be $18,000 in Expansion MRR.

3:50
It's not a percentage, and it's not 180,

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there we go, 18,000 Expansion MRR.

3:59
So to recap, you're starting with the beginning month MRR of $34,500.

4:06
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 +

4:30
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

4:47
+ contraction expansion

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divided by beginning month.

4:57
And I missed a parent that are, a formula up here.

4:58
So I'm gonna head, and had that in.

5:04
So in this example, our Net MRR Churn is

5:08
a very superb number of 20.29%.

5:13
When you have negative MRR churn it means the amount of money you're charging your

5:18
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

5:35
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,

5:47
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

6:02
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

6:47
versus upselling existing customers.

6:50
It just depends on the situation.
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