Why We Chose to Lower Our MRR and ARR

We recently made a strategic decision that has affected our monthly recurring revenue (MRR) and annual recurring revenue (ARR). This choice, although reducing our figures, has provided us with a more transparent business overview from now on.

Several months back, we chose to cancel the Buffer subscriptions of 1,361 inactive annual legacy users. We informed these customers about the option to access Buffer for free or sign up for a new annual plan whenever they wish.

Anticipating this move, we expected a $14,000 drop in MRR, but surprisingly, the figures remained unchanged. We soon realized that the methodology we were using to calculate MRR and ARR was spreading these cancellations across a 12-month period, instead of recognizing them immediately.

This prompted us to question: why should the revenue of accounts that have already been canceled still appear active? Here’s how we tackled this issue to enhance the clarity of Buffer’s financial health and streamline our feedback loop for growth driven by customer experience.

Implementing Immediate Churn Recognition

Previously, revenue from canceled subscriptions was counted until the end of their paid term. Even if someone canceled midway through an annual plan, their status remained ‘active’ until the plan expired. This is a common practice supported by analytics tools like Chartmogul, which often rely on APIs that don’t capture immediate cancellations. We’ve addressed this by updating our methods, allowing our MRR and ARR to reflect cancellations in real-time, making our financial data more accurate and responsive.

Going forward, our recognition of churn occurs instantly, at the time a customer decides to leave. MRR should always represent future expected revenue, so if a customer cancels today, their revenue can no longer be considered “recurring.”

Adjusting Our MRR and ARR for Accuracy

This change resulted in a noticeable impact: our reported MRR/ARR figures have decreased. As an example, our July closing numbers were initially $1.93M MRR ($23.1M ARR), which have now been adjusted to $1.84M MRR and $22M ARR.

As we stand in September, the MRR is approximately $1.87M ($22.4M ARR), slightly below recent milestones like celebrating $23M ARR and 70,000 subscribers. Yet, this represents a clearer, real-time reflection of Buffer’s financial status and customer count.

By recognizing churn promptly, we gain an immediate understanding of how customer experiences influence business growth. When customers depart, it’s visible right away, and their retained loyalty is also evident. This transparency allows us to remain customer-centric, adjusting how we operate to align with real customer interactions.

• Our MRR and ARR figures will now closely follow customer behavior, capturing both growth and churn cycles.
• Historical data will be updated to reflect our new methodology, altering past milestones.
• Changes may appear sharper, especially at month-ends or during group cancellations, providing extra motivation to enhance the product experience.

Our Commitment to Genuine Transparency

This approach may seem unconventional, as most SaaS companies refrain from methodologies that reduce their reported numbers. However, as soon as we understood the advantages, sharing this with you became a priority. This change bolsters the accuracy and transparency of our reporting, ultimately strengthening our relationship with customers.

Transparency has always been a central value at Buffer. It involves sharing both the highs and the lessons learned along our journey towards building a truly customer-centric organization.

Ultimately, we believe this approach will create a stronger, more resilient company. It provides a truthful understanding of how our product impacts the customer experience, adding authenticity to the milestones we celebrate in the future.

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