What are Negative Churn?

What is Negative Churn?

Negative churn can be described as the total additional revenue produced from current customers exceeding the revenue lost from downgrades or subscription cancellations.
To put it precisely, negative churn is the offset of churn due to upgrades, add-ons, and extended amenities made by current customers. With competition skyrocketing and customers leaving at any sign of frustration with their subscription plans, increasing negative churn has become a goal for companies globally.

Businesses looking to optimize negative churn can offer upgrades to higher-tier plans, strategize with cross-selling and upselling, or market new customers to subscribe to their services.

High negative churn is a strong indicator of a company’s financial health, and it signifies the value it provides to its customers, which leads to customer retention and satisfaction.

How to Calculate Negative Churn?

To calculate negative churn, subtract your expansion MRR (Monthly Recurring Revenue) from your churned MRR, then divide that by your total MRR from the previous month.

The formula is as follows:

Churned MRR – Expansion MRR / Starting MRR

Note: Churn MRR refers to the revenue lost from customers who cancel or downgrade their subscriptions. Expansion MRR is the additional revenue generated from current customers through upgrades, add-ons, or cross-selling. Starting MRR is the entire monthly recurring revenue at the start of the period being evaluated.

Here’s an example to help you understand:

You run a SaaS business that is comprised of 100 customers at the beginning of the month, and it generates a total monthly recurring revenue of $10,000.

During the month, you lose 5 customers, which adds up to $500 MRR. However, 20 current customers upgrade their plans or purchase additional services, which adds up to $1200 MRR.

To check how much MRR you lost from the customers, you need to calculate the gross revenue churn rate:

Gross Revenue Churn Rate: MRR lost from downgrades or cancellations/MRR at the beginning of the month = 500 / 10000 = 5%

Now, let’s calculate the negative churn rate:

Negative Churn Rate: MRR lost – Expansion MRR/ Starting MRR = 500 – 1200 / 10000 = -700 / 10000 = -7.

Your negative churn rate is -7%.

This value represents that you grew your revenue from existing customers, even after losing some. Your net revenue grew by 7% from your current customers despite the 5% loss.

Why is Negative MRR Churn Good?

Negative MRR churn is the peak of customer retention. It highlights the company’s success in retaining and expanding its total revenue from current customers, without being affected by losses from cancellations or downgrades.

It represents an organization’s ability to remain financially stable and profitable by growing its existing revenue base. This additional value coming from retention is extremely important, especially for subscription-based startups. Let’s look at some of the reasons why negative MRR churn is good:

Less Dependency on New Customers

Negative churn acts as a shield that protects companies from the fluctuations in new customer acquisition. It guarantees revenue growth even if new customer sign-ups decrease in number.

Sustainability

Existing customers expand their plans, which leads to an overall revenue increase, even if some customers are leaving. It lessens the risk of complete reliance on signing up new customers, leading to sustained revenue growth.

CLTV (Customer Lifetime Value)

Negative churn is a reflection of customers growing with your products over time and expanding their usage, thereby generating more revenue in the long run. This depicts that the company is offering value to its customers, satisfying them throughout their lifetime.  

Cost Efficiency

When businesses can generate more revenue from existing customers, they don’t need to spend on marketing and sales to acquire new ones. Therefore, retaining and expanding with current customers is more cost-effective.

Support for High-Value Customers

With negative churn, there are fewer accounts to manage, which allows you to focus more on providing support to high-value customers. You’re able to build deeper relationships, putting you on an upward trajectory.

How to Achieve a Net Negative Churn Rate?

The simplest way to achieve a net negative churn rate is to implement strategies that reduce the churn rate. This includes creating an impact on your customer base by introducing new features, simplifying engagement, and being transparent as a business.

The following are some actionable tactics that can help you achieve a negative churn rate for your business:

Enhance Expansion MRR:

Achieving negative churn is an aspiration for any business. And the first step to achieving that is enhancing expansion MRR. Now, it may not be as simple as that, because to increase your expansion MRR, there are several strategies you need to implement that optimize your negative churn rate. These include upselling and cross-selling. Let’s explore them both in detail.

·         Upselling

Upselling is providing the opportunity to offer a more powerful, more expensive version of a product that the customer already has.

For example, a customer has purchased the starter plan of your project management tool, which is priced at $10 per month. Since it is a starter plan, it allows up to 5 members and offers basic analytics. As their project starts to gain traction, they want to add more profiles and evaluate key metrics and engagement.

So, they look to upgrade to an expanded subscription plan that offers the addition of more team members, integration with more workflows, and advanced analytics.

A few practical steps you can take to achieve negative churn are offering premium features to customers temporarily to let them get a first-hand experience of the product/service. Furthermore, notice when their plans reach their limit to suggest upgrades that align with their usage, and keep a close eye on opportunities that could drive upsells.

·         Cross-selling

Another way to enhance expansion MRR is to give your customers additional value along with their subscribed/purchased service. This is known as cross-selling.

One way to cross-sell is to offer discounted packages when customers buy several features together. This bundle upgrade enables customer retention, positively impacting your expansion MRR.

Understanding your customers’ pain points is crucial when looking to promote negative churn. For instance, offering a time-tracking add-on when a user creates multiple task lists daily acts as a solution to their problem. This prompt, targeted action adds value to the customer’s subscription experience, persuading them to stay subscribed for a prolonged period.

Prevent Revenue Churn

As much as it is important to enhance your revenue from existing customers, it is equally significant, if not more so, to reduce revenue loss from customer attrition. To have an understanding of your business’s churn rate, there should be enough data, which most startups may not have.

According to surveys, startups report a higher percentage of churn than mid- to large companies.

The important question is: how to bring that churn down?

And here is the answer: develop a culture focused on customers. Prioritizing interactive and responsive customer service can give you high returns on reducing churn.

How well you treat a customer when they first sign up for your service, by offering customization, personalized communication, agile response time, and follow-ups, also works wonders in improving churn over time.

Another crucial factor when controlling your churn rate is to make it easy for customers to pay and manage their subscriptions. Oftentimes, due to a complicated billing process or limited payment options, customers choose to unsubscribe.

In this case, it is highly important to invest in dunning management tools to help prevent churn. Also, offer flexible payment options and look to resolve any billing problems speedily.

How to Optimize Negative Churn with SubscriptionFlow?

SubscriptionFlow is an all-encompassing billing software that offers extensive SaaS customer retention management, helping businesses contain and reduce their churn rates. Through several churn reduction strategies, SubscriptionFlow empowers businesses to optimize negative churn and prevent revenue leakages. These strategies include a smooth onboarding system, flexible subscription options, payment handling, personalization, customer support, and churn management.

Smooth Onboarding

With SubscriptionFlow, you can tailor the onboarding experience to meet the unique needs of customers. This means you can ensure a seamless and intuitive onboarding process by highlighting the value of your service or product. You can also achieve reduced initial frustration by making the sign-up process as quick as possible.

Other than that, keeping the customers engaged and informed about the product is also essential in helping to increase negative churn. SubscriptionFlow does that by offering regular updates, check-ins, and feature spotlights.

Flexible Subscription Options and Payment Handling

This billing management software supports various billing cycles, from the standard weekly, monthly, quarterly, and yearly ones to customizable billing cycles, too. SubscriptionFlow also provides a wide range of pricing options to cater to a larger customer base. On top of that, it handles proration of subscription fees when customers upgrade or downgrade their plans. To streamline the checkout process, it integrates with various payment gateways, helping businesses retain customers.

One of the most vital factors why the churn rate is higher in some businesses is due to weak payment-handling structures. SubscriptionFlow assists in managing failed payments through automated retries and proactive reminders. This also reduces the chances of involuntary churn.

Moreover, SubscriptionFlow allows you to track key metrics such as failure reasons to help you implement effective dunning strategies. Dunning management is essential in preventing customer attrition. With detailed analytics and reports, you can optimize your dunning process and align it with your subscription models and user engagement.

Personalization

When it comes to optimization of negative churn, personalization is key. A customer, when they feel valued, is more likely to keep re-subscribing, inevitably reducing the chances of churn. SubscriptionFlow caters to this need in several ways.

Analyzing customer data through SubscriptionFlow’s AI-based, dynamic tools helps businesses tailor recommendations based on key indicators. This leads to increased customer engagement and satisfaction.

To improve revenue retention, SubscriptionFlow also offers loyalty program implementation to reward customers for continued purchases. Businesses can leverage SubscriptionFlow to offer discounts, exclusive features, and special offers to long-term subscribers as a token of appreciation. This fosters loyalty, encouraging customers to keep interacting, reducing churn.

Improved Customer Support

Businesses looking to optimize negative churn need to focus on improving their customer support. With SubscriptionFlow, this step becomes easier. It administers a proactive customer support system with a centralized overview of customer data that can locate and resolve issues efficiently.

Other than that, the response time SubscriptionFlow offers businesses beats many billing software in the industry. From providing tailored support to utilizing automated alerts, check-ins, and notifications to guide customers through potential issues, it upholds proactive communication.

Businesses benefit from identifying potential gaps in their operations and tracking and resolving them, leading to customer satisfaction and ultimately optimizing negative churn.

Agile Churn Management

To optimize negative churn, what better way than to manage churn proactively? Integrate SubscriptionFlow with predictive analytics tools to build financial models that accurately predict future revenue growth.

This way, you can always stay a step ahead to prevent voluntary or involuntary churn, beating customer attrition and achieving optimal customer retention.