Revenue churn

Revenue Churn is the lost revenue because of churned customers or downgraded subscriptions. It is expressed as a whole number and one of the most important metrics to assess the health of your SaaS business. Besides customer churn, it is essential to track revenue churn since different customers have a different business impact, especially when companies offer multiple pricing plans. For example, it is much more severe if you lose customers who are spending €100 every month on your company than customers who spend €10 per month.

Revenue churn can happen because of many reasons. However, downgrades, subscription cancellations, or customers who head to the competition are the primary reasons for revenue churn.

It is indispensable to differentiate between gross revenue churn and net revenue churn when looking at this metric.

Gross revenue churn:
Revenue lost because of subscription cancellations or failed renewals.

Net revenue churn:
Revenue lost due to subscription cancellations or failed renewals, modified by expansion revenue based on upgrades or cross-sells from remaining customers.

Gross revenue churn does not consider any revenue gained from expansion revenue. For example, if you have lost €200 from cancellations but gained €600 from upgrades or cross-sells, this will not be shown in gross revenue churn. It is mandatory to calculate net revenue churn as well, since gross revenue churn only tells you how much you’ve lost, but not by how much you’ve compensated the losses.

How to calculate gross revenue churn

Calculate gross revenue churn by dividing the revenue lost because of downgrades and cancellations in one month by the amount of revenue at the beginning of the month.

For example, if you have lost €30 due to downgrades and cancellations and you had €120 of revenue at the beginning of the month, your gross revenue churn is 25%.

Gross revenue churn = €30 / €120 = 25%

How to calculate net revenue churn

Calculate net revenue churn by dividing the amount of revenue lost because of cancellations minus the expansion revenue (from up-sells and cross-sells) in 1 month by the amount of revenue at the beginning of the month.

Let’s make an example: If you have lost €30 due to downgrades and cancellations, but you have gained €10 due to up-sells, and had €120 of revenue at the beginning of the month, your net revenue churn is 16%.

Net revenue churn = (€30 – €10) / €120 = 16%

Negative churn – the holy grail

What you want in your business is negative churn. Negative churn happens when expansions, up-sells, or cross-sells exceed the revenue you lose because of churn. For example: people who use a free model of your service upgrade to a premium model or buy another service in addition to their current model. These purchases result in higher revenue, even if some customers churn.

How to improve revenue churn

• Raise your prices
• Reward people to upgrade
• Make upgrading to higher plans easy
• Provide value regularly
• Improve and expand your service

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