Negative Churn in SaaS: Tips, Formula, and Examples

Updated: June 27, 2024
negative churn rate

We grow SaaS businesses. Let’s start growing.

Keeping customers happy is crucial for SaaS companies. Why? Because losing customers is expensive. 

American businesses are experiencing a loss of $136 billion annually because of poor customer service.

Additionally, 66% of customers have terminated relationships with companies due to unsatisfactory customer service or due to wrong pricing strategies.

However, with negative churn, you could not only keep your customers but actually make more money from them over time. 

Negative churn is like growing your business without needing new customers and rapidly achieve your SaaS magic number.

This article will cover:

  • What negative churn really means for SaaS companies
  • How to achieve negative churn
  • The formula to measure negative churn
  • Real examples of companies doing it right

What is Negative Churn in SaaS?

Negative churn in SaaS refers to the situation when the revenue gained from existing customers surpasses the revenue that is lost from cancellations or downgrades.

Here is a simple breakdown of the concept:

Regular churn is when customers leave or reduce their subscriptions, which ultimately leads to a loss of revenue. 

Negative churn is when existing customers increase their spending by more than the amount you lost from the churned customers. It can be through upgrades or additional services.

For example:

You lost $1000 from customers who canceled.

But you gained $1500 in revenue through existing customers with upgrades.

Result: Negative churn with a net gain of $500.

This negative churn is highly desirable for SaaS companies as it means they are growing revenue from their existing customers even if some customers leave.

Formula to Calculate Negative Churn With Example

Start by gathering the necessary data. Here are all the things you need to calculate the negative churn:

  • Total revenue at the start of the period
  • Revenue lost from churned customers
  • Revenue gained from existing customers. For example, upgrades, cross-sells, etc.

Calculate the churn rate:

Churn Rate = (Revenue lost from churned customers) / (Total revenue at the start of the period)

Calculate the expansion rate:

Expansion Rate = (Revenue gained from existing customers) / (Total revenue at start of period)

Calculate the net revenue churn rate:

Net Revenue Churn Rate = Churn Rate – Expansion Rate

How to interpret the results:

If the outcome is negative, you have a negative churn; however, if the result is positive, you have a positive churn.

Example calculation:

Let’s say for a month, you had:

Total revenue at start: $100,000

Revenue lost from churned customers: $5,000

Revenue gained from existing customers: $8,000

Then, 

Churn Rate = $5,000 / $100,000 = 5%

Expansion Rate = $8,000 / $100,000 = 8%

Net Revenue Churn Rate = 5% – 8% = -3%

The negative result (-3%) shows the negative churn. 

This shows that the increase in revenue from current customers exceeded the decrease in revenue from lost customers.

Net Revenue Change = Revenue gained – Revenue lost, which is $8,000 – $5,000 = $3,000.

Tips to Achieve Negative Churn Rate

Here are some of the best strategies to build up MRR from existing customers: 

Use Churn Surveys 

This SaaS MRR boosting strategy involves gathering information directly from customers who are leaving or considering leaving your service. 

The goal is to understand their reasons and potentially address issues to retain them.

Cancellation Surveys

Implement a quick survey when customers attempt to cancel. Cancellation surveys are short questionnaires presented to customers when they try to cancel their subscriptions. 

These surveys help you collect valuable data about why customers are leaving.

Source

By following up on this feedback, you can often resolve the issues and keep customers. 

  • Ask about their main reasons for leaving (for example, price, features, support).
  • Use multiple-choice options for easy analysis, but include an “Other” field for detailed feedback.
  • Make the survey short (3-5 questions max) to ensure completion.

This strategy involves gathering information directly from customers who are leaving or considering leaving your service. 

The goal is to understand their reasons and potentially address issues to retain them.

Follow-up actions 

  • Act quickly on the survey results. 
  • Analyze survey responses regularly (weekly or bi-weekly).
  • Identify common themes or issues depending on your SaaS ICP. For instance, if a customer is leaving due to high pricing, optimize your current SaaS pricing models.
  • Create a dedicated team to reach out to churning customers
  • Offer solutions based on their feedback (e.g., discounts, feature tutorials, or alternative plans)
  • Track the success rate of these interventions to refine your approach

Engage with NPS Detractors

The Net Promoter Score (NPS) is a metric that can be used to measure the enthusiasm of customers, their loyalty, and satisfaction levels. 

Measuring the NPS involves inquiring about customers’ likelihood to suggest your SaaS services to a family member or friend. 

“Detractors” are customers who give low scores and are likely to churn.

Send NPS surveys regularly, for example, quarterly, so that you can check customer satisfaction.

Source

Use a product adoption tool. By using a product adoption tool, you can tag and categorize NPS responses, making it easier to identify and quickly respond to detractors. 

You can address customers’ concerns before they decide to leave.

Focus on detractors (those giving low scores):

  • Set up automatic alerts for low NPS scores
  • Have a member of your customer success team reach out to them within 24-48 hours
  • Listen to their concerns and offer solutions
  • Create a playbook of common issues and effective resolutions.

Analyze the trends:

  • Look for patterns in detractor feedback. You can use these insights to improve your product or service
  • Then, share findings with product, support, and marketing teams. For instance, you can upgrade your B2B SaaS content marketing strategy by producing more content that educates your ideal customers about the benefits of your products. Product comparison articles, how-to blogs, video overviews, are some of the top content examples to reduce customer churn and optimize your current SaaS marketing strategy.

Offer In-App Self-Service Support

It focuses on empowering customers to find answers and solve problems on their own, reducing friction and frustration that could possibly lead to churn.

Develop a comprehensive knowledge base

A centralized storage of information about your product or service is called a knowledge base. 

It typically includes articles, FAQs, and tutorials that customers can access whenever they need help while operating your services. 

  • Use clear, jargon-free language. 
  • Always include screenshots and videos for complex processes to make it easy for the customers. 
  • Regularly update content based on customer feedback and product changes.

Implement in-app guidance

It refers to built-in help features within your software. 

These features make it easier for customers to learn and use your product effectively. 

  • Use tooltips and pop-ups to explain features as users navigate the product
  • Create interactive walkthroughs for new users or when introducing new features
  • Offer a “Help” button that’s always visible and links to relevant support resources

Track and optimize self-service

The key to successful self-service support is continuous improvement. 

  • Monitor the resources that are most frequently accessed
  • Analyze search queries to identify gaps in your knowledge base
  • Use heatmaps to see where users are struggling in your app
  • Improve based on usage data and feedback

Offer Free Trials to Premium Plans to Encourage Upgrades

It involves giving your current customers a taste of more advanced features or services without any initial cost. 

It’s an effective way to show them the added value of higher-tier plans.

Offer trials lasting 14-60 days, which will give customers enough time to explore and appreciate new features of your SaaS products.

Source

Target and focus on customers who have been using your basic plan consistently for a few months.

Implementation:

  • Send personalized emails highlighting how your premium features solve their specific pain points.
  • Use in-app notifications to promote the trial when users face limitations in their current plan.
  • Provide an upgrade process at the end of the trial.

Showcase New Features and Products

Always keep your existing customers informed about new offerings that could benefit them, encouraging them to expand their usage and spend more.

Send your customers regular updates. It can be sending monthly or quarterly newsletters highlighting new features and products. 

Source

Start targeted campaigns by using customer data to identify which new features would most benefit each user segment. 

Also, create personalized email campaigns or in-app messages for each segment.

Host live sessions and demonstration webinars showcasing how new features solve common problems.

You can share case studies of how other customers benefited from new features.

Use subtle notifications or banners within your product to draw attention to new capabilities.

Implement Cross-Selling and Upselling

Cross-selling means you offer related products or services to customers, whereas upselling motivates them to buy a more costly option of what they are using already.

Present offers to customers when they are most engaged. For example, after a successful interaction with your product or service.

Source

Analyze the service usage patterns to identify which additional products or upgrades would be the most relevant to each customer.

Use AI-powered recommendations to suggest relevant add-ons or upgrades that can also enhance personalization.

Create attractive packages that combine related products or services at a slight discount.

Highlight the advantages and extra value provided by the upsell or cross-sell.

Train your customer success and sales teams on recognizing and seizing upsell/cross-sell chances during customer interactions.

Establish automated email or in-app notifications that are activated by certain user actions or milestones to promote cross-selling and upselling opportunities and accelerate your SaaS sales.

Conclusion

Negative churn isn’t just some fancy business term – it’s about creating a snowball effect of success for your SaaS company. 

With negative churn, you are not just stopping customers from leaving; you’re turning them into enthusiastic supporters who actually want to spend more with you.

We have walked from crunching the numbers to real-world tactics that work. 

The secret sauce? It is all about adding value.

By providing tailored suggestions, improving communication, or demonstrating value for money, the goal is to ensure that your product becomes essential to customers’ lives.

So, what’s your next move? Take these insights and run with them. Experiment, learn from your users, and keep improving. 

Looking to Grow Your SaaS Business?

Try Clickstrike, a leading B2B SaaS Marketing Agency. Trusted by leading tech companies.
Share on:
Twitter
WhatsApp
Facebook
Telegram
LinkedIn
Contents