1 00:00:01,070 --> 00:00:06,340 Earlier in the course, we introduced MRR, or monthly recurring revenue. 2 00:00:06,340 --> 00:00:10,470 This is the revenue we get from customers who are paying us monthly. 3 00:00:10,470 --> 00:00:14,500 How much customers pay us each month can depend on many factors. 4 00:00:14,500 --> 00:00:18,470 For example, let's pretend we are a software company that is used for 5 00:00:18,470 --> 00:00:20,220 project management. 6 00:00:20,220 --> 00:00:23,440 We charge our customers a fee based on the number of active users 7 00:00:23,440 --> 00:00:24,940 they have each month. 8 00:00:24,940 --> 00:00:27,980 So take a minute to think about that. 9 00:00:27,980 --> 00:00:32,570 We are a project management software company, and we charge our customers 10 00:00:32,570 --> 00:00:39,040 a per-user fee based on whether or not the user is active in a given month. 11 00:00:39,040 --> 00:00:43,300 Go ahead, pause the video, and think of all the different possibilities for 12 00:00:43,300 --> 00:00:44,780 the changing amounts billed there. 13 00:00:46,740 --> 00:00:48,610 Okay, welcome back, so 14 00:00:48,610 --> 00:00:51,240 let's just talk through some of the different possibilities here. 15 00:00:52,240 --> 00:00:56,350 Last month, we charged a customer for all their active users. 16 00:00:56,350 --> 00:00:57,350 In the current month, 17 00:00:57,350 --> 00:01:01,440 we might charge a customer more if they hired a bunch of new employees. 18 00:01:01,440 --> 00:01:06,480 Or if in the previous month, they only had a few teams using our software, but 19 00:01:06,480 --> 00:01:09,100 this month, they have a bunch of new projects, and 20 00:01:09,100 --> 00:01:11,690 thus additional team members started to use our software. 21 00:01:12,900 --> 00:01:17,317 Or perhaps it's in reverse, and we are charging less for the opposite reasons. 22 00:01:17,317 --> 00:01:20,350 A la the customer had to do a layoff or 23 00:01:20,350 --> 00:01:23,530 the number of teams using our software declined. 24 00:01:23,530 --> 00:01:28,820 This is all customer specific, and will naturally vary a lot depending on company 25 00:01:28,820 --> 00:01:33,420 size, age, and to what extent they've adopted the project management software. 26 00:01:34,890 --> 00:01:38,230 If we have a lot of customers of varying sizes, 27 00:01:38,230 --> 00:01:42,570 the amount of money we can charge our customers could vary widely. 28 00:01:42,570 --> 00:01:47,450 Or might not be as noticeable as we are looking at a large group. 29 00:01:47,450 --> 00:01:51,130 Okay, let's start walking through this with a gross churn calculation. 30 00:01:52,180 --> 00:01:56,880 We know what our existing customers paid us in MRR last month. 31 00:01:56,880 --> 00:02:01,268 Some accounts ar large and some accounts are small in terms of what they pay us. 32 00:02:01,268 --> 00:02:06,190 But we will capture all of them in our total MRR calculation. 33 00:02:06,190 --> 00:02:13,070 So whatever they paid us in aggregate last month is our beginning of month MRR. 34 00:02:13,070 --> 00:02:17,220 Unfortunately, we had some customers cancel their accounts. 35 00:02:17,220 --> 00:02:19,860 So whatever they paid us last month, 36 00:02:19,860 --> 00:02:25,320 they aren't paying us this month, we would call that cancelled MRR. 37 00:02:25,320 --> 00:02:29,060 Let's pretend we had 10 customers that paid us a total 38 00:02:29,060 --> 00:02:31,750 of \$34,500 in MRR last month. 39 00:02:33,190 --> 00:02:37,540 One is relatively huge and pays us \$10,000 each month. 40 00:02:37,540 --> 00:02:39,930 Eight are medium sized and, believe it or 41 00:02:39,930 --> 00:02:43,890 not, they all pay us the same amount of \$3,000 a month. 42 00:02:43,890 --> 00:02:47,770 And one is small and pays us \$500 a month. 43 00:02:47,770 --> 00:02:50,110 Let's practice some churn calculations. 44 00:02:50,110 --> 00:02:55,680 Can you tell me what the gross MRR churn is if we lose two medium sized customers? 45 00:02:55,680 --> 00:02:56,840 What about just the gross churn? 46 00:02:57,880 --> 00:03:02,690 What is the gross MRR churn, if we lose our one big customer? 47 00:03:02,690 --> 00:03:05,080 The same for just gross churn. 48 00:03:05,080 --> 00:03:07,480 Go ahead and work through those calculations, and 49 00:03:07,480 --> 00:03:09,020 we'll talk through it in our next video.