If you’re not familiar, the term negative churn sounds like something a SaaS company should avoid at all costs. And if you understand churn as the rate at which you lose current customers, you could be forgiven for mistaking negative churn for a particularly bad churn rate.
But that couldn’t be further from the truth. Negative churn, as it turns out, refers to the point at which your new and existing customer revenue exceeds that lost from unsubscribing customers Tweet .
While the term negative churn may be unfamiliar to some, what it represents is or should be the goal of every SaaS business.
The path to achieving negative churn is pretty simple. Obviously, some amount of churn is to be expected for any SaaS company, no matter how great the products. But if you’re successful with acquiring new customers and do well to increase the value of your best subscribers with cross-sells and up-sells, your new monthly revenues should exceed that being lost to churn.
A negative churn rate is reflective of a company that understands where its revenue is coming from and is doing everything it can to maximize it.
Consider this simple formula from InsightSquared, for calculating negative churn:
Negative Churn = (New Customer Revenue) + (Existing Customer Revenue) – (Churned Customer Revenue)
When Negative Churn Becomes Crucial
While negative churn should always be your goal, it becomes increasingly important as your business grows and matures. Regardless of your churn rate, as your business grows, your revenue from new and existing customers should also continue to increase and offset the amount lost to churn and downgrades. If it doesn’t, your revenue growth will slow, and you’ll run the risk of plateauing.
Achieving Negative Churn
As this article illustrates, implementing a strategy that looks to achieve negative churn starts as early as your pricing model. But in essence, there are three paths to success:
Finally, it’s unrealistic to think that you’ll be able to achieve negative churn by taking only one of the above paths. In reality, you’ll need to become proficient at all three before you can even begin. The first step is understanding the concept, and the measures you’ll need to take to get you there.
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