Negative churn is what happens when a business's existing customers generate more revenue through expansions than they lose from downgrades and cancellations.
To calculate negative churn, simply subtract your expansion MRR from your churned MRR and divide that by your starting MRR for the time period.
Here's the formula:
Negative Churn = (Churned MRR - Expansion MRR) / Starting MRR
And here's an example.
Let's say you're a SaaS product with $100k starting MRR. Over a given time period, you churn 3 customers worth -$1k MRR each ($3k total). You also see 2 contractions worth -$500 MRR each, for a total loss of $4k MRR.
During the same time period, 2 of your existing customers expand their accounts by $2.5k each, for total expansion revenue of $5k.
Applying the formula, we have:
($4,000 - $5,000) / $100,000 = -1% churn
Negative churn is desirable for all subscription businesses, but it can be difficult to achieve. There are just 2 key inputs: reduce churned revenue, and increase expansion revenue. Improving both of these is essential to achieving negative churn.
Here’s some quickfire ideas to consider for growing customer expansion revenue.
1. Test different packaging & pricing models. If you have multiple price points right now, what is it that causes people to choose the higher package? More team seats? More usage? Unlocking premium features? Try changing limits & packaging to push users towards higher tiers.
2. Sell add-ons. Beyond the base package that your customer has, consider offering complementary products & services for an extra cost. For example, Zoom does this by offering optional extras like cloud storage or premium support.
3. Nurture your relationships, and be patient. Now might not be the right time to upsell, but if you build a great relationship, they’ll be more receptive to the idea when the time comes. Make sure you don’t only contact your customer when it’s time to pay more.
And here’s some ideas to consider for reducing customer churn.
1. Start by understanding why people churn. Ask directly, set up exit surveys or emails to gather as much qualitative & quantitative data as possible. Were you missing a feature or an integration? Was the need no longer there? Is the price too high?
2. Invest in customer support & success. For some products, knowledge is the limiting factor. Customers could be more successful, if only someone could show them how. Having fast support, a clear knowledge base and a dedicated account manager could be the difference between churn and expansion.
3. Attract the right customers. Review your customer acquisition strategy, and make sure that you’re attracting your ideal customer profile. Those users who are the happiest, spend the most, and would be very disappointed if your product no longer existed. Focus on finding those, instead of any old customer.
Having negative churn unlocks rapid growth. If you’re acquiring new customers, AND expanding accounts faster than they’re contracting or canceling, then you have a solid business on your hands. Better customer lifetime value, better customer retention & advocacy, and improved cash flow.
You need to find ways to increase retention, and add upsells/cross-sells. Strategies might include: investing in a customer success & support team, building new features to increase customer stickiness & product usage, revising packaging & pricing, or incentivizing sales teams to upsell existing customers.
Negative churn occurs when a business's existing customers generate more revenue through expansions than they lose from downgrades and cancellations. This is good for profitability. Positive churn (or, just 'churn' as it is usually called) occurs when a business loses more customers & revenue than it gains in expansions from existing customers, which is bad for profitability.
