Churn is one of the worst things that can happen to SaaS businesses. The term refers to when customers stop using your products or services for a better alternative. It is also a vital parameter to measure the “health” of your SaaS business.
“Negative churn,” however, is good for SaaS businesses because it is a friendlier churn metric. Also known as Net Negative Churn, it is when your existing customers generate more new revenue than what you lose from customer cancellations and downgrades.
The term was first coined by David Skok. According to him, negative churn occurs “when the expansions/up-sells/cross-sells to your current customer base exceed the revenue you are losing because of churn."
Negative churn is good news because it indicates growth by retaining customers and increasing revenue rather than vice versa. It represents customer loyalty as it depends on recurring revenue, excluding one-time purchases or cross-selling.
How to Calculate Net Negative Churn?
The net negative churn calculation is similar to the net MRR churn rate calculation. The formula used is:
Net Negative Churn Rate = (Churned Monthly Recurring Revenue - Expansion Monthly Recurring Revenue) / Starting MRR
If the net MRR churn rate is negative, you have achieved negative churn. However, if your churned MRR is lower than your expansion MRR, it denotes a negative number, indicating increased revenue from existing customers.
Here’s an example of net negative churn:
Suppose a SaaS subscription business with 200 clients charges $10 a month for every user seat. The calculated MRR is $2000. Let’s say 50 clients churn, causing a loss of $500. However, 20 clients added three user seats and increased the revenue by $600.
Using the above formula, we can calculate the negative churn as:
($500 – $600) / $2000 = -0.05% Net Monthly Recurring Revenue Churn.
This example demonstrates that despite losing 50 clients, there was still a $100 increase in revenue from existing clients.
How to Achieve Net Negative Churn?
To achieve a negative churn rate, it's important to use strategies that increase revenue from current customers while minimizing losses from those who leave. To accomplish this metric, you should:
- Use data from your billing software to devise marketing strategies for personalized customer experiences.
- Improve and update the quality of your product or service based on the latest market trends.
- Offer free trials and freemium offers to leverage feature discovery to drive account upgrades.
- Keep your customers happy with an exceptional customer experience and service.
- Upsell and cross-sell by introducing additional or premium products to your existing customer list.
- Maintain regular contact with your customers to stay updated about their requirements.
- Collect customer feedback and try to make improvements based on the content.
- Implement loyalty programs to ensure a steady income and business.
How Does Negative Churn Drive Growth?
Negative churn indicates that customers stay with your product, demonstrating its value. It can drive business growth by:
• Increasing customer retention
Enhanced customer satisfaction leads to higher customer lifetime value (CLV), ensuring long-term customer retention and increased revenue stability.
• Increasing cost-effectiveness
Expanding within the existing customer base and reducing churn is better than spending money on extensive customer acquisition campaigns. The latter can be expensive and unnecessary when you can focus on retaining current customers. By doing so, you can reduce additional costs.
• Better market acquisition
Creating a strong customer base can boost your market reputation and attract potential investors. This approach further solidifies your customer retention and reduces revenue churn.
Leverage Net Negative Churn For High-Yield Retention
Achieving net negative churn is a powerful cornerstone of establishing yourself in the market. However, as a SaaS business, you must be ready to go the extra mile to make this achievement because there is no tailored formula.
Consider ways to improve your service by considering your customers' needs and its value. Better service and versatile planning can ensure better customer retention and revenue growth- even with less customer acquisition.
