You’ve heard it here and elsewhere: churn matters. It might not be the be-all, end-all of your SaaS business, but it’s pretty important if you want to have a handle on your company’s value, profitability, and prospects.
Knowing how to measure it is pretty important, too, and this might be a more complex task than many realize.
SaaS Subscriber Churn is Just the Beginning
Subscriber churn, or customer churn, is the most widely-used churn measurement, and it should definitely be part of your monthly (or weekly) calculations. Understanding how many subscribers your SaaS business loses in a given time period not only helps you see financial realities and set realistic expectations, but it also tells you how subscribers are viewing your service and whether there are improvements that need to be made in what you deliver and how you deliver it.
This is only one way to measure churn, though, and while it’s unquestionably important from an internal perspective it might not be the most essential when determining your SaaS company’s objective value.
Weekly, monthly and annual subscriber churn tell you a lot about your company’s stability and growth prospects, but by themselves these measures don’t tell you—or your potential investors and shareholders—about profitability, or even revenue. For this, you need to look at other churn measures.
If the goal of your SaaS company is the kind of growth that comes with a buyout by a larger company, as it is for many SaaS startups, you need to go deeper.
MRR Churn and the Future of Your SaaS Business
MRR is one of the more recent acronyms to join the panoply of shorthand phrases in the tech startup/entrepreneurial world. It simply stands for “monthly recurring revenue,” which is fairly self-explanatory as a concept—it’s the amount of revenue that your company takes in on a recurring basis each month—but which is somewhat more complex in its application.
Your monthly revenue can fluctuate a great deal based on new customers, lost customers, and upgrades and downgrades to subscription plans. MRR typically refers to normalized measurements; you select a specific period (usually at least a year), add up each month’s revenue, and divide by the number of months in the term. You’re calculating the mean monthly revenue you received over a certain period, getting rid of all the fluctuations to present a clear understanding of the revenue you’re taking in.
The MRR from one period can be compared to the MRR of another period to determine growth (or shrinkage), or to a given month’s revenue to determine how that month stacks up against the average. This is where MRR churn comes into play. Measuring a given period’s revenue against your company’s normalized MRR lets you identify the real revenue turnover of your company as a whole, rather than simply looking at one subscriber at a time.
It gives you and your investors a much more solid view of where your revenue and profitability are headed, and thus of your company’s real financial value.
So don’t give up your subscriber churn calculations, but consider adding MRR churn to the mix. Get a better grip on growth, especially if you’re hoping to sell somewhere down the line.