Churn is a major drain on any SaaS company attempting to scale. Negative churn, on the other hand, can massively accelerate the company’s growth.
“As a SaaS company becomes larger, the size of the subscription base becomes large enough that any kind of churn against that base becomes a large number,” writes VC David Skok. “That loss of revenue requires more and more bookings coming from new customers just to replace the churn.”
As a result growth slows substantially.” But according to Skok, it’s also possible for businesses to achieve what he calls “negative churn” — “when the expansions/up-sells/cross-sells to your current customer base exceed the revenue that you are losing because of churn.”
How do you achieve negative churn? In a post for his For Entrepreneurs blog, Skok explains that companies can expand revenue from their current product – by having a pricing model that increases the pricing according to some usage metric that will grow over time, for example (think DropBox) — up-sell customers to a more highly featured version of your product, and cross-sell customers to purchase additional products or services. He also highlights six tactics companies can you to help reduce their churn, including calling lost customers to determine why they’re canceling, allocating your best reps to saving customers who call to cancel, and considering testing a longer term contract.
Read Skok’s full post for more advice on how to scale your company successfully by reducing churn and achieving negative churn, instead.
Related Content from OpenView:
Churn can have a major impact on SaaS companies, but that doesn’t mean there aren’t a lot of reasons to love about recurring revenue models. Read this post from the OpenView Blog for more advice on how to avoid churn and burn.