Negative churn. It’s music to the ears of any sales rep. It’s the veritable state of enlightenment for tech companies. It’s the holy grail of the software-as-a-service (SaaS) industry. While the word “negative” generally connotes, well, a not-so-positive experience, we can’t seem to find a more melodious SaaS term. It may sound counterintuitive, but negative churn is a glorious thing.
What is negative churn, you ask? To be honest, the definition is a bit vague.
Essentially, net negative churn occurs when the additional revenue you generate from existing customers, month over month, outperforms the revenue you’re losing due to customer cancellations and downgrades. It occurs when you’re making more money each month due to additional spending from existing customers—even if you’re losing customers.
We know what you’re about to say. Every company loses customers. Customers change their minds. Your services and products evolve. And sometimes you just don’t meet the needs of every single person, every single time. These are all very true statements. In other words, customer churn is just a reality of business for SaaS companies. So, how do you lose customers and still grow?
The short answer is that you need to increase expansion revenue—or revenue per customer. Expansion revenue is achieved when you increase the revenue you’re getting from current customers and products. When executed properly, expansion revenue can have a high-margin and low-cost option that can have a significant impact on your churn rate and bottom line.
It’s much easier to get more money from existing customers who are happy with your products. To help achieve more revenue per customer—and, in turn, attain negative churn—consider these two techniques:
Cross-selling occurs when your channel partners, account managers or sales team convince customers to purchase products or services to enhance a previous purchase. Think of it like buying a pair of socks to match a pair of shoes you just purchased. You may not need the socks—but damned if they don’t look good with those new kicks. In this regard, cross-selling provides value to clients. And it increases revenue per customer.
If you have versions of your product that are more featured—and, in turn, more expensive—you have an opportunity to upsell. Cross-selling offers are directly linked to the initial solution and are often sold at a lower price. You’ve already gotten people in the door. Now is the time to get them to pay for more advanced and robust solutions.
2. Upselling and Upgrading
Ah, the upsell: the oldest trick in the traditional-sales book. Upselling and upgrading occur when channel sales teams, account managers, CSMs or sales reps offer customers a more expensive product from the same product line that they already own or are about to purchase.
Whereas upselling centers on customers who have already purchased an item—and have loved it—upgrading focuses on updated versions of an existing product. Prime upsell candidates include those who have posted positive reviews online. The best upgrade situations occur when you identify a customer with a problem or an opportunity to save money.
When executed properly by your channel partners, account managers and sales reps upsells and upgrades are relatively simple ways to increase revenue per customer at a lower cost to acquire that additional revenue. By tailoring an offer around a specific customer’s needs, you not only provide additional value to your customer base, but you create a win-win situation for them and your organization.
For examples of companies that have found success, read our piece about 30 SaaS partner programs.
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