Negative Churn and Expansion Revenue

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Yes, you might have “negative churn” or “expansion revenue” where you lose some customers but the ones that stay pay you more over the course of the year.

That’s awesome! Expansion revenue is the best.

Unfortunately, in my experience, SaaS providers with high churn rates often don’t know how to effectively up-sell, cross-sell, or even down-sell so their churn rate is rarely offset by expansion revenue.

And the cost of acquiring more customers – especially when accurately figuring in all sales, marketing, on-boarding, and support costs – will frequently do more to offset what expansion revenue they have than the other way around.

As well, their pricing models are usually such that they don’t effectively move customers to higher pricing tiers and, in fact, often have non-value differentiators (like storage) separating pricing tiers so that customers game the system to avoid paying more (a major churn threat, by the way).

That said, assuming you’ve got up-sells and cross-sells that work and you have a pricing model that encourages customers to use more so they pay more to drive expansion revenue, how much better would it be if you could expand revenue over a larger customer-base by keeping more customers?

Right… so even when arguing for expansion revenue, I’m also arguing for lower churn.

More SaaS + Software Stats

SaaS businesses face significant losses in the early years (and often an associated cash flow problem)

The fastest growing SaaS companies scale their organizations rapidly, growing their teams by an average of 56% each year

Since churn is so important, wouldn’t it be useful if we could predict in advance which customers were most likely to churn?

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts

The very best SaaS businesses have a negative revenue churn rate and will have a Revenue Retention Rate of greater than 100%

It’s common for startups to grow rapidly, doubling or tripling in size year over year, until they hit $5M in ARR

Net-revenue churn improves with larger Average Contract Value (ACV), likely due to more structural churn among SMB customers and higher switching costs associated with larger contracts

Moving from $1.5 million with an eye towards $10 million in ARR is a tough a task and will take an excellent VP of sales to get you there

Customer Segmentation analysis will help point out which are your most profitable segments

Between the SMB and Enterprise customer types, the top-quartile performers not only have net-revenue churn that is 14% to 23% percentage less than the average performers but also have net-revenue churn that is negative in an absolute sense

More Growth Strategy Stats

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts

The average company gets 16% of new ACV sales from up-sells and expansions, though companies with revenue between $10MM-$40MM are relying more heavily on up-sell and expansions

Internet Sales strategies have a significantly lower CAC of just $0.42

It’s 4x cheaper to upsell existing customers than acquire new customers: costing just $0.28 to acquire an additional dollar of revenue

The median annual contract value (ACV) was $25K, $21K, $21K, $20K in 2016, 2015, 2014 and 2013

A University of Texas study showed that women ask for $7,000 less than their male counterparts in job interviews

The very best SAAS companies keep monthly revenue churn at around 0.58%, that’s only about 7% revenue churn a year

The average SaaS company spends just 6 hours determining their pricing strategy

In contrast to these, the median annual churn rate for smaller, private SaaS companies with less than $10M in revenue is 20%

The venture-backed companies that were acquired most often had a 7 percent share of female execs, as opposed to 3 percent at unsuccessful (unacquired) firms