As a SaaS company becomes larger, the size of the subscription base becomes large enough that any kind of churn against that base becomes a large number. That loss of revenue requires more and more bookings coming from new customers just to replace the churn. As a result growth slows substantially.
Negative Churn:
Negative churn is when the amount of new revenue from your existing customers is greater than the revenue you lose from cancellations and downgrades.
There are three ways to achieve a negative churn:
- Expand revenue from your current products: Having a pricing model that increases the prices according to some usage metric that will grow over time.
- Up-sell: Selling a more highly features version of your product.
- Cross-sell: Customers purchase additional products or services from you.
Tactics to reduce churn:
- Call your customers
- Measure customer engagement
- Figure out what features make your product sticky
- Allocate your best reps to the job of saving customers that call to cancel
- Consider testing a longer term contract
- Look at other factors to correlate churn
How Churn affects Valuation
If you are presenting your SaaS company to a VC, expect them to pay very close attention to your churn numbers, even if you are early stage. They will be looking at churn as a great indicator of whether or not you have good product/market fit.
Source: https://www.forentrepreneurs.com/why-churn-is-critical-in-saas/
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