MRR Movement Analysis
Understanding Monthly Recurring Revenue (MRR) movements is crucial for SaaS businesses. This interactive tool demonstrates how different business parameters affect your revenue growth and churn patterns.
Why MRR Movements Matter
Growth is intuitive. Churn is not
- At churn = growth, business will stagnate.
- At 5% monthly churn, growth peaks within 2 years
- At 7% monthly churn, growth peaks within 1 year
The Math
- 5% monthly churn = 60% annual churn
- You need to acquire 60%+ new customers annually just to stay flat
- This becomes increasingly difficult as you scale
Understanding MRR Components
Positive MRR Movements (Growth)
- New MRR: Revenue from new customers
- Expansion MRR: Existing customers upgrading plans
- Reactivation MRR: Churned customers returning
Negative MRR Movements (Loss)
- Churned MRR: Revenue lost from customers leaving
- Contraction MRR: Revenue lost from customers downgrading
Summary
- Net MRR = Positive movements - Negative movements
- Sustainable growth requires positive net MRR
- Churn is usually the first and most impactful thing to work on for long-term growth.
Key Metrics
Core Parameters
- Users: Total users (paid + free)
- Monthly growth: Monthly percentage of new users
- Monthly churn: Monthly percentage of users who cancel
- Growth, churn volatility: Standard deviation for growth, churn rates (multiplicative)
Derived Metrics
- MRR: Monthly Recurring Revenue (Users × ARPU)
- ARR: Annual Recurring Revenue (MRR × 12)
- Customer longevity (months): 100 / churn rate (monthly)
- LTV: ARPU (monthly) / customer longevity (monthly)
Examples
- At 5% monthly churn: LTV = ARPU / 0.05 = 20 × ARPU
- At 2% monthly churn: LTV = ARPU / 0.02 = 50 × ARPU
- Lower churn improves LTV as it means your users stay subbed longer.
Help, how to use?
Basic Parameters
- Set your users, prices
- Set your last known growth rate and churn rate
- Set your last known upgrade, downgrade rates
- The world is not perfect, set a basic volatility (default 20%)
| Churn Level | Monthly Rate | Growth Pattern | Business Impact |
|---|---|---|---|
| High | 5%+ | Growth plateaus quickly | Unsustainable without constant acquisition |
| Medium | 2-3% | Sustainable growth | Healthy business model |
| Low | 1% | Exponential growth | Excellent product-market fit |
Real-World Benchmarks
| Performance Level | Monthly Churn | Annual Churn | LTV/CAC Ratio | Payback Period | Reality Check |
|---|---|---|---|---|---|
| Excellent | 2% | 20% | 3:1+ | 12 months | Top 10% of SaaS companies |
| Average | 3-5% | 30-50% | 2-3:1 | 12-18 months | Most SaaS companies |
| Poor | 5%+ | 50%+ | 2:1 | 18+ months | Those that fail to scale |