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Negative Churn

What is negative churn?

Negative churn happens when additional spending on upgrades, add-ons, and new services by existing customers outpaces the amount of revenue you lost from existing customers. It’s important to note — net negative churn does factor revenue from new customers.

Net negative churn formula

Additional revenue from current customers (feature/product upgrades + add-ons + services) - Revenue lost (cancellations + downgrades) = Net negative churn rate

Why is negative churn important?

In a subscription business, you can’t avoid churn. Even the best business model will have some level of churn.

Here’s the cool thing about net negative revenue churn. The revenue that you lose from customers who churn can be made up for by your current customers who spend more each month. How does this happen?

Let’s say you run a SaaS business: an email marketing startup. While you might churn 3% of revenue, if you can make up for that 3% by collecting more revenue from other customers, you can continue growing without having even having to acquire new customers. How do you do that?

Maybe you’re great at converting current customers to higher tier plans — or maybe you get businesses to upgrade to more seats on a monthly basis. It depends on your pricing model, but there are several routes to achieving net negative churn.

Negative churn is especially important because it can be a key tool to provide stability in your monthly recurring revenue (MRR)! It could also provide a mindset shift within your company, as you start realizing that current customers could be just as or more valuable than new customers. According to the Small Business Trends, The probability of selling to a new prospect is 5 to 20 percent, while the probability of selling to an existing customer is 60 to 70 percent.

3 ways to improve net negative churn

There are several strategies you can take when trying to collect more from your current customers — and increase your net negative churn.

  • Cross-selling: is when you give added value to customers through different features or additional products or services. This could be unlocking a new feature set.
  • Upselling: happens when you sell existing customers on a more dynamic, more valuable version of the product they have already bought. This could be a higher-tier plan than the customer currently holds.
  • Seat expansion: is another method to add to your net negative churn. This method refers to having a customer adding more employees (seats) to make the software more utilized by a larger percentage of an organization.

These methods can drive expansion revenue for the business.

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