Negative monthly revenue churn.
The pinnacle in any subscription/retainer business, whether you're a PR agency selling service retainers, or a Software-as-a-Service (SaaS) company selling cloud software into the enterprise.
What is negative churn? It's simple, it's when your upsells and cross sells exceed the value of your lost customers each month. Negative churn means that your company will continue growing, even if it doesn't bring in new customers.
In today's post I give two examples of negative monthly revenue churn, and explain how to get there.
A PR agency has 3 set packages they sell to small-medium sized businesses, priced at £2,000, £4,000 and £6,000 per month respectively. They also have an add-on social media management service which can be added to any package, which is £1,000 per month.
The PR agency in question has 20 existing customers, 10 on the £2,000 plan, 6 on the £4,000 plan and 4 on the £6,000 plan. Two customers on each plan are currently paying for the social media add-on.
In a typical month, the PR agency loses 1 customer. For simplicities sake we'll say that it's random as to which customer leaves, which means the average monthly retainer is lost each month:
(10x£2000 + 6x£4000 + 4x£6000 + 6x1000) / 20 = £3,700 in revenue churn each month.
In order for the PR agency to achieve negative monthly revenue churn, they'd therefore need to generate at least £3,700 in upsells each month. That could be achieved by selling social media packages to two of their existing customers, and convincing another one to upgrade to the next package up (£4,000 growth), for example.
A marketing software provider has a product with 2 set packages -- basic and premium, which they sell to businesses. The basic package is priced at £250 per month, and the premium at £450 per month. They are also just about to launch an entirely separate second product which sells for £100 per month.
Of their existing customer base, they have 100 customers on the basic package, and 35 customers on the premium package. On average they lose 3 basic customers per month (£750/mo), and 1 premium customer per month (£450/mo).
This means they need to generate at least £1200 in additional monthly revenue from their existing customers to achieve negative churn. They could exceed this by e.g. cross selling 5 customers their new £100/mo software, and encouraging 4 basic customers to upgrade to premium each month.
Strategies for Reaching Negative Churn
Upselling is the act of trying to encourage a customer to spend more money with you, either by increasing their service level or upgrading to a more expensive package.
Examples of upselling include encouraging a customer who uses your CRM software to upgrade from the basic edition to the premium edition or encouraging a customer who buys your digital marketing services to purchase a monthly email marketing campaign.
If you want to be successful with upselling, you need to carefully design your service levels and pricing structures to make it easy and beneficial for your customers to spend more. You also need to have trained account managers regularly contacting customers (where it's appropriate) encouraging additional spending. It's not enough to just leave customers alone and assume they'll increase their spend without a personal touch.
That's not to say that automation isn't helpful, especially if you sell Software-as-a-Service (SaaS) products. Maybe you could send automated emails out when customers perform specific actions in their account, which encourage an add-on or upgrade, for example?
Cross selling is similar to upselling, but with one fundamental difference. Instead of trying to sell upgrades or add-ons to the existing product/service, cross selling involves selling an entirely different product/service to the customer.
For example, if you ran a technology company that sells a document management solution to its customers, you could develop a business process management solution too, and cross sell that additional solution to your document management customers.
Increasing Customer Retention
Last but not least, the most important thing to focus on if you want to achieve negative monthly revenue churn is increasing customer retention.
If your company is losing a large number of customers each month, it's going to be virtually impossible to achieve negative churn. No amount of upselling or cross selling is going to help a company that's losing 25% of its customer base each month.
If you're experiencing high churn, think very carefully:
- Are you overselling, and underdelivering?
- Are you failing to support customers properly after a sale?
- Are there fundamental problems with your product/service that make it hard to use?
- Are you targeting the right people with your solution(s)?
- Do you make it easy for customers to pay and renew?
- Are you continually working on improving your products or services?
- Do you keep in regular contact with customers post-sale?
Working on all of the above can help you to retain more customers.
If you're in the SaaS sector, take a look at our previous post: 5 Sales & Marketing Mistakes That Lead to High Churn in SaaS for some specific ideas on reducing churn.