What is Negative Churn, and How Can SaaS Companies Achieve It?

Negative churn is the ultimate goal for SaaS businesses—a metric that represents unlimited revenue growth potential. Understanding how to achieve it means moving beyond merely reducing churn and aiming to eliminate it.

Achieving net negative revenue churn isn’t easy. It requires innovative thinking, patience, and a deep commitment to customer success. But if you’re ready to elevate your SaaS business, negative churn is the key to sustainable growth.

In this guide, you’ll learn what churn is, why going “negative” is advantageous, and how to calculate it. We’ll also cover common pitfalls to avoid, along with actionable strategies to help you reach this prized metric.

What is Net Negative Churn?

Net negative churn occurs when the additional revenue from existing customers exceeds losses due to churn. Put simply, if existing customers purchase upgrades, add-ons, or expanded features, your monthly recurring revenue (MRR) grows without needing new customers. When this extra revenue outweighs churn losses, you achieve net negative churn.

An added benefit of this strategy is reduced customer acquisition costs, allowing you to grow while focusing on customer success rather than solely on conversions. While new customer acquisition remains crucial, achieving negative churn gives SaaS companies a stable foundation to grow regardless of acquisition rates.

Understanding Churn

In SaaS, churn refers to the loss of customers or revenue. There are two key churn metrics that SaaS businesses monitor to assess growth potential.

• Customer Churn: The percentage of customers lost over a given period. This occurs when customers cancel or downgrade their subscriptions.

• Revenue (MRR) Churn: The percentage of revenue lost due to cancellations or downgrades.

Both metrics should remain low to maintain a healthy growth trajectory. Reducing customer churn involves optimizing customer retention efforts, while minimizing revenue churn often relies on cross-selling and upselling to help customers derive maximum value from their subscriptions.

Calculating Churn Rate

To calculate churn rate:

Churn Rate=(Lost CustomersTotal Customers)×100\text{Churn Rate} = \left( \frac{\text{Lost Customers}}{\text{Total Customers}} \right) \times 100Churn Rate=(Total CustomersLost Customers​)×100

Example: Starting with 25,000 customers and ending the month with 23,750 gives a churn rate of 5%.

Calculating Negative Churn

The formula for negative churn is:

Negative Churn=(Churned MRR−Expansion MRRLast Month’s MRR)\text{Negative Churn} = \left( \frac{\text{Churned MRR} - \text{Expansion MRR}}{\text{Last Month's MRR}} \right)Negative Churn=(Last Month’s MRRChurned MRR−Expansion MRR​)

Example: Suppose you lose $10,000 in MRR due to cancellations, but gain $12,000 through expansions. With a previous MRR of $65,000, the churn is:

10,000−12,00065,000=−3% churn\frac{10,000 - 12,000}{65,000} = -3\% \text{ churn}65,00010,000−12,000​=−3% churn

This negative churn means growth without new customers.

Challenges and Barriers to Achieving Negative Churn

Achieving negative churn is not without challenges:

• Involuntary Churn: Some customers may cancel inadvertently due to expired cards or outdated billing information. Proactive customer care can help prevent these issues.

• Over-Reliance on New Customers: Constantly acquiring new customers to offset churn isn’t sustainable. Focus on existing customers to achieve a more stable model.

• Misaligned Upgrade Options: If your upgrade options don’t meet customer needs, they may have little incentive to buy more. Offer a variety of tiers or add-ons to meet diverse customer needs.

How to Achieve Negative Churn

Here’s how you can work toward the magic of negative churn:

1. Optimize Your Pricing Strategy: Your pricing model is central to generating expansion revenue. Offer free trials of premium plans to current customers or discounted trials to encourage upgrades.

2. Reduce MRR Churn: Engage and retain your customers. Provide top-tier support, automate renewals, and anticipate needs to keep customers at least at their current subscription level.

3. Focus on Upsells, Cross-Sells, and Add-Ons: Instead of pushing customers into upgrades that may not fit their needs, offer add-ons or extra seats they’re likely to find useful. Set specific growth benchmarks from your current customers and encourage gradual expansions.

Achieving net negative churn is within reach if you prioritize your existing customers. Keep them engaged, offer them new ways to benefit from your product, and ensure your offerings align with their needs.

Churn is inevitable, but its impact on growth can be minimized. Even companies with moderate churn have reached negative churn by prioritizing customer success. Once you achieve it, your SaaS business will be better equipped to weather acquisition slowdowns and shifts in customer behavior.