Total Guide to Understanding and Calculating Churned Revenue

The churn rate reveals the number of customers you have lost, meaning those that have discontinued their subscriptions within a set timeframe. Now, if you are wondering whether or not this metric matters, although we are pretty sure you already know the answer, SaaS churn stats are crucial for all SaaS businesses. Why? Simple. Because churn is an essential parameter in revenue forecasting. Let’s explain this idea a bit. While churn unfolds the numbers of customers, hence revenue, you have lost, it can also be used as a prediction or probability tool, giving you an idea of how much profit you may be losing. This allows you to optimize your sales & marketing budget and be prepared to take action.

Yes, in the world of SaaS, there is a debate between customer churn and revenue churn. While these might seem very much the same thing, as customers equal revenue in the SaaS bigger picture, the truth is that you can only obtain a bird’s eye view over your business by keeping an eye on both. Let’s look at each of them briefly and understand the differences.

What is Revenue Churn?

The revenue churn rate tells you how much MRR (monthly recurring revenue) is lost due to customers who have churned or downgraded their subscriptions. The revenue churn formula is the same as the saas churn calculation method.

What is Customer Churn?

Customer churn refers to the number of customers that have canceled their subscriptions. The customer churn rate calculation method is the general SaaS churn formula.

Which One is Better for SaaS Businesses?

Tough question. The answer is both because each points out the different data that could help your business thrive. Let us explain. The customer churn rate SaaS formula helps you monitor how many subscribers you lose each month, showing how good you are in your customer retention efforts. On the other hand, revenue churn rates shed light on your success in retaining your customer’s revenue. Although the two continue to be very similar, one needs to remember that not all customers are the same. Customer churn calculation may show you have lost 10% of your customers, but those churned customers might have had different subscription packages. And this means that revenue churn and customer churn will have different values. Also, when calculating churn saas rates, both customer and revenue, try to segment your data before analyzing it.

Yes, you’ve read right. There is such a thing as a negative churn rate. Also known as negative revenue churn, it appears when the additional revenue from existing customers, also known as expansion MRR, is higher than your churned MRR, meaning your lost customers and downgrades.

1. How to Calculate Negative Churn

   The negative churn rate calculation SaaS formula is the following:

   Negative Churn = (Churned MRR – Expansion Mrr) previous Month Total MRR

   It’s important to mention that the expansion MRR is usually generated through your marketing efforts, as it represents the number of existing customers upgrading, add-ons or through cross-sells

2. Why is This Type of Churn Good?

   To put it bluntly, negative churn means you are gaining more customers over a specific period. Your monthly revenue is growing, and your subscription business is thriving. You are bringing additional value and doing a great job at retaining customers. This is one of those SaaS metrics that brings you great joy, confirming that you are on the right growth path.

3. How to Get a Negative Churn?

   The secret rests with your customers. The goal is to obtain customer success and keep your customer base happy and satisfied. And yes, you want to gain new customers and lower revenue churn, but simultaneously, you want to ensure your expansion MRR is going up. And that can only be done by taking care of your existing customers and convincing them to spend more. The key here is impeccable SaaS customer service. The more you show your users that they can depend on you through the SaaS customer service you offer them, the more points you earn.

Understanding the SaaS churn definition is essential, as you will most certainly do your best to keep this metric as low as possible. However, preparing for a churn rate is very important. All businesses have churn, irrespective of their domain, sector, and industry. It’s a fact of life, cheered on by competitiveness. So, simply because your company has its average churn rate should not panic you. There is a churn rate threshold that most marketers generally accept, but this should always be looked upon annually, not monthly. Because monthly, even a low churn rate can significantly affect your business. So, the generally accepted churn rate is 5-6%. Still, always remember that this is between you and your business. So, from one point on, you just have to stop taking things personally and accept your company’s churn rate while doing everything you need to improve it.