Retention and churn

Retention answers a different question from the movement table. The movement tells you what happened. Retention tells you whether it was good.

The two that matter

Gross revenue retention asks: of last month's revenue, how much did you keep?

Customers who stopped paying and customers who paid less both count against it. Customers who paid more do not help it. It cannot exceed 100%.

Net revenue retention asks the same thing, but customers who paid more do count.

Above 100% means the customers who stayed grew enough to more than cover the ones who left. That is the number a lender, a board or a buyer will ask you for.

Worked example

Starting the month at $40,018:

Lost

($4,508)

Contraction

($529)

Growth

+$1,644

Gross revenue retention = (40,018 − 4,508 − 529) / 40,018 = 87.4%

Net revenue retention = (40,018 − 4,508 − 529 + 1,644) / 40,018 = 91.5%

New customers appear in neither. Both ratios are about the book you started with, which is what makes them comparable month to month.

Note. For the revenue ratios, Morevy shows the term and a plain sentence explaining it. The terms are kept because they are what an outside party will use, not because they are friendly.

Why they are switched off on a cash basis

If you chose cash collected rather than recurring revenue, these ratios are unavailable, and Morevy says so on screen rather than leaving a gap.

The reason is worth understanding.

Retention is defined over revenue matched to the months of access it paid for. Run the same formula over collection timing and a customer who prepaid six months in January reads as a total loss in February, March, April, May and June. They did not leave. They paid early.

There is no valid cash-basis version of these ratios. Rather than show a plausible-looking number under a familiar name, Morevy withholds them and names the basis that would support them.

Customer retention is different

Customer retention counts people, not money. The share of customers who were there last month and are still here.

It is worth watching alongside the revenue ratios because they can move in opposite directions. Losing ten customers on your cheapest plan barely dents revenue retention and still tells you something real about the business.

What these ratios will not tell you

They are backward-looking, and they are ratios. A single month at 87% is not a trend, and a small book makes every ratio jumpy: on 200 customers, three departures move the number more than any decision you made that month.

They also do not say why. A ratio is a measurement, not an explanation - the commercial reason a customer paid less or stopped lives outside the billing export.

Ask for a few months at once before drawing a conclusion.