Breakdown
How it works
Each month MRR loses a churn percentage and gains new and expansion revenue. Because churn is proportional and new business is fixed, MRR converges on a ceiling = (new + expansion) ÷ churn. Net revenue retention above 100% (expansion exceeds churn) means the installed base grows by itself.
Formula
Worked example
100k MRR, 8k new, 2k expansion, 2.5% churn: 12 months → 179k MRR (2.15m ARR); ceiling 400k; NRR 94%.
Frequently asked questions
What churn is acceptable?
SMB SaaS 3–5% monthly is common but painful; mid-market 1–2%; enterprise under 1% monthly (10% annual). Consumer apps are far higher.
Gross vs net churn?
Gross churn counts only lost revenue; net churn offsets it with expansion. Report both — negative net churn is the SaaS holy grail.
How do I raise the ceiling?
Halving churn doubles the ceiling. Onboarding, customer success and annual contracts move churn more than any pricing change.