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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.

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More SaaS + Software Stats

As with unit churn, companies with longer contracts (2+ years) tend to report lower annual dollar churn

Achieving a SaaS Quick Ratio of 4 is a good benchmark for young, high-growth companies but the equation changes as those companies reach scale

54% treat upselling and add-on sales as high priority

Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month

As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x

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

Companies with longer contracts (2+ years) reported the lowest annual unit churn

High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.

After $10M in ARR, the median growth rate slows to just under 50%

The very best SAAS business has a negative churn rate and will have a Dollar Retention Rate of greater than 100%

More Growth Strategy Stats

The average SaaS business generates 16% of its new Annual Contract Value (ACV) from upselling to existing customers

Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less

As of December 2018, there were total 105,000 employees in Lockheed Martin, as compared to 126,000 employees in 2015.

The median Customer Acquisition Cost (CAC) for upsells is just $0.28 per $1, less than a quarter of the $1.18 spent to acquire $1 of revenue from a new customer

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

In 2017, Foxconn Technology Group achieved a net income of 135.37 billion New Taiwanese dollars, the equivalent to approximately 4.55 billion U.S. dollars.

When venture capitalists participate in seed rounds, the average round size is 3x larger

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

The top 50% of the fastest growing SaaS businesses generate much higher upsells than their competitors. The larger the business, the greater the impact of upselling

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