Retention
What is Negative Churn?
What Causes Negative Churn?
Net churn is calculated as:
Net Churn = [Cancellation MRR + Downgrade MRR] - [Reactivation MRR + Upgrade MRR]/[MRR at Beginning]
Imagine a business that closes a month with 10 customers paying $100 each. Let’s imagine one customer churns the next month, but the remaining 9 customers upgrade to $120 each.
Net Churn = [1*100] - [9*20] / [10*100] = -8%
How To Influence and Interpret Negative Churn
Needless to say, negative churn is an aspirational state for any subscription business. It means the business is able to more than compensate for its revenue churn from within the existing customer base.
Many factors go into achieving negative churn, not the least of which is minimizing revenue churn. On the other end, expansion revenue (upgrades) can be influenced via a strong and proactive customer success program. That said, the kind of value metric that your pricing is based on and the pricing structure itself is just as important to effect expansion. The right value-metric (like the number of seats for a helpdesk software) is almost certain to help with expansion revenue over time as the customer's business grows.
