How is Revenue Churn Calculated?
Revenue Churn is derived as the ratio of revenue lost through cancellations during a period versus the revenue available at the beginning of that period. It’s usually expressed as a percentage.
Revenue Churn = (Churned MRR)/(MRR at the beginning of the period)
How should a business interpret Revenue Churn?
For all practical purposes, a single ‘revenue churn’ metric doesn’t help much. It’s much more useful to ask for either Gross MRR Churn or Net MRR Churn.
Gross MRR Churn attempts to show how much you’re losing, irrespective of how much you may be expanding within the existing customer base via expansion and upgrades. In this way Gross MRR churn helps focus on how much revenue leakage is happening. It’s always a positive number.
Net MRR Churn, on the other hand, attempts to paint a picture of the final reality after taking into account what’s lost (via cancellations, downgrades) and what’s gained (via expansion, reactivation and upgrades). Net MRR Churn can be negative. That’s to say the business is making more money out of a cohort of customers than it’s losing from the same cohort, in that period of time.