The elusive negative churn. Is it just a SaaS myth or can you actually get it for your business? We take a look at the phenomenon.
Reducing churn is one of the highest priorities for any SaaS business. Everyone is permanently fighting to try and minimize the number of customers that drop off and cancel subscriptions. Not only are there tools that you can implement, but there are dozens of strategies that you can start practicing to make sure that your customers stay loyal to your brand.
But, what about negative churn? Is it a real thing? Are companies actually achieving it? Can you start changing up your strategies to reach negative churn in your organization and increase your monthly revenue?
We take a look at just what negative churn is, how achievable it is and what steps you can take to start seeing it benefiting your business.
Unpacking Negative Churn
So, just what is this negative churn? Let’s make this super simple to understand. Customer churn in any SaaS is a natural, unavoidable occurrence.
Negative churn happens when your current customers are generating enough revenue that it makes up for the customers that are unsubscribing (or churning). So essentially, the revenue that you might be losing when a customer cancels or drops out, is made up by your current customers spending more.
Let’s look at the numbers, keeping in mind that negative churn is actually positive revenue. Let’s say you lose 5% of your customers during a month. But, during the same month, your existing customers increase their spend by 10%. This will mean a 105% increase in revenue from the previous month – negative churn at its best.
Once negative churn starts happening in your organization, you will start seeing better results in your monthly revenue churn calculations compared to the customer churn calculations. At the end of the day, your huge client which makes up 10% of your revenue is more important than the new customer who is only paying the bare minimum for your services.
This, therefore, means that some of your existing customers are usually worth more than new customers as finding new customers is six times more expensive than retaining customers.
So, what do you need to start doing to achieve negative churn in your organization? We have found a few strategies that you can implement in your company to start encouraging your current customers to spend more with you and therefore, creating negative churn.
It’s All About Expansion
The best way of achieving negative churn is to encourage your customers to “buy more”. Although this seems simple, the process involved is not necessarily that easy. There are four ways of getting your customer to spend more money with you.
Cross-selling is the act of selling a customer a product or service that will complement the product that they have already bought.
Let’s look at this in a retail environment, if the salesperson convinces you to buy a handbag to match a pair of shoes that you have already bought, they have just cross-sold to you.
You can do the same in your SaaS. If you have a product that can work hand-in-hand with products that the customers are already purchasing you can start increasing your revenue by selling this to them too.
Up-selling refers to SaaS businesses prompting customers to increase the resources and usability of the product that they have already bought. Should they need more features, more space or more accessibility, you can encourage them to pay a bit more per month to be able to do more.
A real-life example here could be Hubstaff. You can choose the lowest subscription which will only allow you to enter times in manually and you will have very limited usage of the app. Once you upgrade, however, you will be able to do so much more. Suddenly, you will have an automated widget which you can start and stop when you need to track times. Further upgrades can allow URL tracking, invoicing and payroll solutions.
3. Resource Expansion
This is similar to up-selling and a lot of people do confuse the two. Resource expansion differs in the way that it simply expands the AMOUNT you can use.
The best examples here is Apple. They allow you to purchase more online storage once you start reaching your limit. Also, increasing your data or mobile phone minutes is an example of resource expansion.
By allowing your customer to “top-up” you can generate more revenue out of them and see negative churn start working for you.
4. Seat Expansion
Seat expansion refers to the offer of additional users or seats to an existing customer. The customer can start adding more employees to the product to make it more usable.
If the finance manager, HR, and marketing manager can all benefit from using the product in various ways, you can package it in a way to encourage them to buy more than one access point for users.
Getting Customers to Expand
So, just how do you get your existing customers to start buying more from you? The key here is mostly to make sure that you know what your customer wants and to know what they are going to expect from you.
The customer journey is one of the key elements in SaaS that you should be spending your resources on. Making sure that your customer is always surprised and delighted with your service will establish a sense of loyalty among your clients. Brand loyalty is vital in any business as it means that your customers will keep returning to you month after month.
Spending more time and money on doing research into your customers’ needs and wants will mean that you will be able to have options which they will want to purchase.
Stay ahead of the innovation curve, if you offer a customer part of the service or product that they didn’t even know they needed, they will most likely be positive to take it.
The same can be said for the seat expansion. If you can offer your customer an all-encompassing solution that can be customized for the whole team, you will be able to charge more for more people to use it.