# MRR calculation and monthly churn

> MRR calculation when some customers pay for a year, plus new and lost MRR, monthly churn rate and revenue churn, on one real month of GarageDesk.

- Course: [From Idea to Profitable Product: Building Without Investors](https://productovi.com/courses/bootstrapped-product.md)
- Module: Numbers every month
- Lesson 20/30, ~30 min
- Source: https://productovi.com/courses/bootstrapped-product/mrr-and-churn

## MRR calculation: money in the bank is not MRR

**Alex Tutor:** October at GarageDesk, and Oscar runs to the two of us, his mentors, with happy news.

**Oscar:** My first two months full time! And look: in October the account got over 40,000 UAH. Two shops paid for a whole year at once.

**Alex Tutor:** Congratulations, but don't plan with that number. Next month nobody pays for a year and the account looks sad, even if nothing bad happened.

**Alex Tutor:** For planning you need **MRR**, monthly recurring revenue: what current subscriptions bring in a normal month. A yearly plan counts as its price divided by 12.

![A water tank fills from a steady tap, while next to it a bucket was splashed full once by a passing wave.](https://productovi.com/courses/bootstrapped-product/inline/mrr-and-churn-illustration-2.webp)

*MRR is what current subscriptions bring in a normal month.*

**Sofia:** So the 40,000 wasn't real?

**Alex Tutor:** Very real, and good for the reserve. But eleven of the twelve months of those two yearly payments belong to future months, so in planning they count as 500 a month each.

**Alex Tutor:** Oscar is about to plan November. Two numbers are on his screen.

> **Exercise:** In October GarageDesk's account received over 40,000 UAH, partly because two shops paid 6,000 UAH for a whole year at once. Which number should GarageDesk use to plan November's spending?

**Nina:** On 1 October we had 58 shops: 50 pay 600 a month, and 8 paid 6,000 for a year.

> **Exercise:** On 1 October GarageDesk has 50 shops on the monthly plan at 600 UAH and 8 shops on the yearly plan at 6,000 UAH a year. What is the MRR in UAH?

## New MRR and lost MRR in one month

**Sofia:** And by the end of October?

**Nina:** Nine new shops: seven monthly and two yearly. Three monthly shops left: two cancelled, and one card failed and was never updated.

**Alex Tutor:** Then don't just count shops. Split the change into **new MRR** from new customers and **lost MRR** from those who left. Later you'll add upgrades and downgrades, but GarageDesk has one plan for now.

$$
\text{MRR}_{\text{end}} = \text{MRR}_{\text{start}} + \text{new MRR} - \text{lost MRR}
$$

*MRR at the end of the month: MRR at the start, plus MRR from new customers, minus MRR from customers who stopped paying. Yearly plans count as price / 12.*

> **Exercise:** MRR on 1 October is 34,000 UAH. In October GarageDesk gains 7 monthly shops (600 UAH) and 2 yearly shops (6,000 UAH a year) and loses 3 monthly shops. What is the MRR on 31 October, in UAH?

## Monthly churn rate: customers and money

**Sofia:** MRR grew, so is everything fine?

**Alex Tutor:** Growth can hide a leak. **Churn** is the share of customers who stopped paying this month: customers lost divided by customers at the **start** of the month.

**Nina:** Why the start? We finished with 64.

**Alex Tutor:** Because the nine new shops had no real chance to leave yet. The same logic for money gives **revenue churn**: lost MRR divided by MRR at the start.

$$
\text{churn} = \frac{\text{customers lost}}{\text{customers at start}} \qquad \text{revenue churn} = \frac{\text{lost MRR}}{\text{MRR at start}}
$$

*Both are measured for one month and divided by the start-of-month figure. Retention for the month = 1 − churn.*

**Alex Tutor:** Before you calculate, make sure the base is clear.

> **Exercise:** GarageDesk started October with 58 paying shops, gained 9 new ones and lost 3, ending with 64. Why is October's churn divided by the 58 shops at the start of the month, not the 64 at the end?

> **Exercise:** GarageDesk started October with 58 paying shops and lost 3 of them during the month. What is October's customer churn, in %? Round to one decimal.

## Why 5% a month is a lot

**Oscar:** Five percent sounds small. Ninety-five percent stay!

**Alex Tutor:** Per month. Churn repeats every month on whoever is left. At 5.2%, about half of today's shops will be gone within a year, and an average shop stays roughly 1 / 0.052 ≈ 19 months.

![At 5.2% monthly churn and no new sales, 64 shops fall to about 34 in twelve months: churn repeats on whoever is left, so about half are gone in a year.](https://productovi.com/courses/bootstrapped-product/diagrams/m6-l1-churn-compounds.png)

*Monthly churn compounds.*

**Alex Tutor:** It's a leaking bucket: 64 × 0.052 ≈ 3.3 shops a month, and that grows with the base. Oscar has to sign more than three new shops a month just to stand still.

![A bucket under a tap fills with coins while coins drip out of a small hole near its bottom; a mechanic presses a thumb against the hole.](https://productovi.com/courses/bootstrapped-product/inline/mrr-and-churn-illustration-3.webp)

*A small monthly leak repeats on whoever is left.*

**Oscar:** So cutting churn from 5% to 3% is worth as much as a new sales channel.

**Alex Tutor:** Check Oscar's claim with numbers. Take today's 64 shops and no new sales.

> **Exercise:** GarageDesk has 64 paying shops and monthly churn of 5.2%. If monthly churn were 3% instead, about how many of today's 64 shops would still pay after 12 months, with no new sales? Round to a whole shop.

> **Exercise:** Monthly churn stays at 5.2%. **True or false:** a year from now, 12 × 5.2% ≈ 62% of today's 64 shops will have left.

## Yearly plans in MRR hide the monthly leak

**Sofia:** The yearly shops can't leave in October at all, can they?

**Alex Tutor:** Right, they decide once a year. So also look at churn among monthly shops alone: 3 of 50 is 6%. Yearly plans make the business steadier, but they can hide a problem for months.

**Nina:** And next March we'll see how many of the first yearly shops renew.

**Alex Tutor:** Mark it now. A renewal month is a churn month for yearly customers.

**Alex Tutor:** So report two churn numbers: for all shops and for monthly shops. If they drift apart, look closer before the renewals arrive.

> **Exercise:** GarageDesk started October with 58 shops, 50 on the monthly plan at 600 UAH and 8 on the yearly plan at 6,000 UAH a year, an MRR of 34,000 UAH. During October it gained 7 monthly and 2 yearly shops and lost 3 monthly shops. Match each October figure to its value.

## A one-page SaaS metrics report each month

**Alex Tutor:** Make it a ritual. On the first working day of each month, one page: MRR at the start, new, lost, at the end, both churns, and the names of the shops that left.

**Nina:** Names? It's just three rows.

**Alex Tutor:** Three rows today, and the only way to learn why they left. The percentage says how fast the bucket leaks; the names say where the hole is.

**Oscar:** I'll call all three this week.

> **Exercise:** Oscar is happy that MRR grew by 3,400 UAH in October. The October numbers: on 1 October, 58 shops and MRR of 34,000 UAH; during the month, new MRR of 5,200 UAH and lost MRR of 1,800 UAH, as 3 shops left; 64 shops at the end of the month. In 3–4 sentences, explain to him what these numbers really say about GarageDesk and what the founders should do next.

> **Key ideas**
>
> - **MRR** = monthly plans + yearly plans / 12. Bank receipts jump; MRR is for planning.
> - MRR at the end = start + new MRR − lost MRR. October: 34,000 + 5,200 − 1,800 = **37,400 UAH**.
> - **Churn** = customers lost / customers at the start: 3 / 58 ≈ **5.2%**. **Revenue churn** = lost MRR / MRR at the start: 1,800 / 34,000 ≈ 5.3%.
> - Churn compounds: at 5.2% a month about half the shops leave within a year.
> - Watch churn among monthly customers separately; yearly plans leave only at renewal.

**Alex Tutor:** Next time: Oscar's three phone calls, and why shops really leave.

- Previous lesson: [Market expansion: another city or another kind of shop?](https://productovi.com/courses/bootstrapped-product/another-city-or-another-kind-of-shop.md)
- Next lesson: [Why customers churn and how to reduce it](https://productovi.com/courses/bootstrapped-product/why-shops-leave.md)

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