Recenty, we realized that our method of calculating MRR or ARR didn’t give us the most accurate picture of our company.
We decided a few months back to cancel Buffer’s annual subscriptions for 1,361 legacy accounts that were inactive. They were told that Buffer is always free and they can sign up for an Annual Plan again.
We were expecting a drop of $14,000 in monthly recurring revenues (MRRs) after sending the email and cancelling the annual plans. However, the figures didn’t change.
When we did not see an immediate effect of the cancellations, we knew there was a problem. These cancellations are being spread out over the next year, tied to every customer’s subscription renewal date.
We didn’t like that. The accounts of those customers had been cancelled. Why are their revenues still being counted the same as before?
This is how we changed the way we calculated to gain a better understanding of Buffer’s financials and get faster feedback on what drives customer growth.
We used to count revenue for customers who cancelled Buffer until their subscription period ended. For example, someone cancelling halfway through an annual plan would remain ‘active’ until the twelve months ended. Chartmogul and other analytics tools use this method because of API limitations that make it difficult to track cancellations instantly. This limitation has been overcome, and now our MRR, ARR, and other numbers reflect cancellations instantly.
In the future, we will recognize the churn as soon as it occurs. At the exact moment a client leaves, this is when we begin to track churn. MRR by definition reflects the expectation for future monthly recurring revenues. They’re all gone. It’s not revenue “recurring” anymore.
The MRR/ARR reported is now lower. This is to put it in perspective. We reported our July closing numbers as $1.93M ($23.1M) ARR. These numbers are now adjusted at $1.84M MRR ($22M ARR).
Our MRR is seated around today in September. $1.87M ($22.4M ARR). This is below our recent milestones like crossing the 70,000-paid subscriber mark and celebrating ARR of $23 million. It’s a better, more real-time representation of Buffer revenue and customers.
The ability to recognize churn instantly gives us a better picture of how our customers experience affects growth. We can see when customers are leaving. When customers stay loyal, we can see it more easily.
As we sync the data you will see that on 3rd August, there is a decline. our transparent metrics When we cancelled these 1,361 Buffer annual subscriptions,
Selecting smaller numbers is more accurate
“We’re doing this because we believe having this responsiveness baked into our metrics will serve us in providing a superior experience.” – Joel GascoigneBuffer CEO and Founder, Mr.
It wasn’t an attempt to fix a mistake or correct a wrong. The recognition of churn was a deliberate decision. We made a conscious decision to change the default method in favor of a more quality-oriented, transparent one.
This is also an adventurous choice.
Most companies will delay the recognition of churn to the end period of payment. The reported figures will appear larger longer. To the contrary, we’ve decided to include cancellations in real-time. It’s a lower number but it feels accurate and transparent. We are independent and can report the data in a way that we deem most important.
We are committed to being truly customer-focused and ensuring that every part of the way we work reflects what our customers really experience.
The implications for moving forward
- Now, our MRR and AR charts are more in tune with the behavior of customers. This includes both growth and churn.
- The historical data of the Open Page will be updated to reflect these changes.
- The fluctuations may seem more dramatic, especially at the end of the month or when several cancellations occur on a single day. This is a positive feature and not a defect: It gives us more motivation to improve our product.
Transparency and honesty are important
This might seem unusual. SaaS providers aren’t known for adopting a method that lowers headline numbers. As soon as we recognized that it would enhance the way we used our numbers, we knew we had to tell you. It improves our transparency and accuracy of reporting. This brings us closer to customers which is our ultimate goal.
Transparency has been a core principle at Buffer. This means that we will share not just the highlights of our journey but also any changes made along the way, as we grow and learn.
This change, in the end, will strengthen and make our company more resilient. We can now see the true impact of all our work on product development and customer service.
