Impact Pricing Blog

Is Negative Churn Possible?

Yes!  But probably not how you think.  When I first heard the term negative churn, I was thinking it was when you could get people who had unsubscribed to resubscribe.  In fact, more of them resubscribe than unsubscribe in the current period.  Foolish. That’s not what it is.

Negative churn happens when your expansion revenue exceeds your churned revenue.  Ignore winning the new customer revenue for now, are you growing your current customers faster than you’re losing them?  The only way to get to negative churn is to focus on expansion revenue.

Early stage companies should not be worried about expansion revenue … yet.  Instead, they should be focused on winning and keeping customers (acquisition and retention revenue).  Then, as they build a user base and plenty of user data, they should begin focusing on expansion.

Expansion revenue comes from three places:  usage growth, upsell, and cross-sell.  Capturing revenue from usage growth and upsell comes from pricing and packaging.  You need to find the right pricing metrics so your revenue grows with your customers’ usage.  And you need to use usage data to inform you of which features to offer in which packages and which features to make options.

Choosing the right pricing metrics and creating the right packages are two crucial components of achieving negative churn.  Oh, and the best, fastest-growing subscription companies have very negative churn.  PagerDuty, who is about to IPO, has a 39% negative churn measured annually.  That means if the subscribers they have in January paid an average of $100 per month during the previous year, this upcoming year that average would be $139.  And that includes all unsubscribers.

Early on, ignore expansion revenue.  Get your company stable.  But, once you’re running, if you want to grow quickly, it’s time to focus on pricing and packaging.

 

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