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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 Expansion 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 parenthetical in
the formula up here,

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so I'm gonna go head and add 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 Churn 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.