Revenue Churn: Definition, How to Calculate, Ways to Track & Improve

In very simple terms, Revenue Churn is nothing more than the answer to the question: “How much revenue did your company stop receiving in a period of time?” (MRR or ARR)

But… What´s the point of this?

Basically, it lets you know that the revenue reduction (monthly, annual, quarterly, or any selected period of time) is related to cancellation or non-renewal of your online service; or an inefficient commercial and marketing strategy (in case of having a more traditional business model)

Maintaining a controlled Revenue Churn is vital in the long run for the growth of the company and its financial health. Retaining customers will depend a lot on the quality of your services or products, but, above all, how quickly you rectify strategies that are not working.

Radix offers you countless possibilities to predict how your customers will behave with real-time data and thus control the decrease in revenue. Likewise, anticipating using your own data is also a good option, for that matter you can use Machine Learning.

Here’s a guide of what you need to know about Revenue Churn:

  1. How to calculate Revenue Churn.
  2. How to calculate the Net Revenue Churn.
  3. Is Customer Churn the same as Revenue Churn?
  4. Is there an optimal Revenue Churn Rate?
  5. Net Negative Churn Rate: Does it exist?
  6. Ways to reduce Revenue Churn

HOW TO CALCULATE REVENUE CHURN

It is usually done over monthly periods, although this can be done over any given cycle.

Remember that Revenue Churn is the loss percentage of your MRR (Monthly Recurrent Revenue). These revenues can come from different sources: cancellations, failed charges, and downgrades. In short, any usual income that did not enter the company and that had entered within the last 30 days.

Revenue Churn Ecuation

Revenue Churn Formula

And that’s how you save a lot of time (and money) by letting Radix do it all for you…. Or you can spend hours working on spreadsheets. It is up to you!

HOW TO CALCULTE NET REVENUE CHURN

The main difference between Revenue Churn and Net Revenue Churn is that the second one takes into account profits made during a given period of time.

Example: you may have lost $10K in cancellations, but you have gained $14K in upgrades.

It basically lets you know the difference between what you’ve lost and what you’ve earned. That’s why you need to calculate Net Revenue Churn rate.

                                  Net Revenue Churn Ecuation

  Net Revenue Churn Formula

 

Both Churn Metrics are very important. The first one tells you how much you’ve lost and the other one how much you’re making up for those losses.

IS CUSTOMER CHURN THE SAME AS REVENUE CHURN?

They might sound and look almost the same, but no, they’re two totally different things and the difference is simple. Customer Churn is the percentage of customers who have cancelled a subscription in a given period of time (in case of having a business model by subscription), and Revenue Churn is the percentage of Profits loss of existing customers.

Both indicators are very valuable for future analysis, and it is highly recommended to focus on both. Just because clients are not canceling doesn’t mean you are not losing money. Downgrades have a huge long-term impact on the profitability of your business.

IS THERE AN OPTIMAL REVENUE CHURN RATE?

One of the most asked question to the Radix team is: “Is there any ideal Revenue Churn Rate?” and our answer is always: “There is no definitive answer to this”

Why?

Let’s say your company’s Revenue Churn Rate is 7% and you’re in the business, for example, of selling auto parts online, so in that specific industry the average value is 8% (fictitious data) so your business has excellent performance. However, if, for instance, your company is in the SaaS sector – whose Revenue Churn Rate is 5%- and you get the same 7%- it is concluded that your company is not having such a good time.

Moral: You must carry out an exhaustive benchmarking in the industry where your business is and, from this, draw the conclusions that best suit your strategy.

NET NEGATIVE CHURN RATE: DOES IT EXIST?

Yes, it does

“It happens when Expansion Revenue is higher than Lost MRR.”

Let me show you an example: The initial MRR Balance is $20,000 (at the beginning of the month). Your losses are equal to $2,000 (Cancelled Customer, Downgrades, etc). But (from existing customer upgrading or making a cross-sell) you gained $4,000.

Then:

 Net Negative Revenue Churn Ecuation

Net Negative Revenue Churn Ecuation

The above equation tells us that, even though there were revenue losses, you still came out ahead.

 

 

 

Finally we come to the final part of this post.

WAYS TO REDUCE REVENUE CHURN

The first thing we have to understand is that there is always room for improvement, even if our Revenue Churn is negative. Thinking this way will keep your company on the path of sustained growth.

Of course there are guidelines that will help you achieve this.

Here are some:

  • Educate your clients

What a customer (and a potential customer) values most is being explained and educated about the product or service.

For this it is highly recommended to make blog posts like this, short videos, articles and resources. The key is to anticipate the questions that the customer may have, that is, to be proactive and not reactive.

 If you show them the value of your product there is more chance that they stay much longer.

  • Analyze your pricing

If you have a subscription business and many of the losses come from downgrades or cancellations, then it may be a warning that your price is off.

Fortunately, tracking this kind of data is what we do at Radix Haven. We present the information to you through our Revenue Churn Dashboards complete and intuitive– and what you have to do is pay attention to plans that are being cancelled or downgraded.

On the other hand, if your online business is not by subscription, you can also use our tool and, from this data, for example, review SEO and SEM strategies, as well as your Social Media strategies.

revenue churn
Remember to review unusual Revenue Churn Plans because that’s where the leak is.

Also, an easy and direct way to find out why customers are canceling or doing Downgrades is to ask directly.

How?

Easy: Cacelation insightss

revenue churn

Let’s say a lot of the answers are price-related. Don’t assume you need to lower it. Maybe the customer feels you’re not providing value for the price you’re charging.

Therefore, you should see what your competitors are offering and what they are charging. This will help you a lot.

Hey, here’s a little secret: They are doing the same with your product.

  • Make a strategy around Upgrades, Cross-Sells and Add-Ons

This is the part that will counterbalance the Lost Churn (MRR). That’s why you MUST and NEED to focus very well on this. Here is what each of these terms means:

  • Upgrades: Offering a better/higher priced service/product.
  • Cross-Sells: Offering a complementary service/product.
  • Adds-On: Offering a function to a service/product that enhances the experience of that service and/or product (Existing customer)

Keep in mind: your expansion opportunities will depend a lot on the business you’re in.

  • Win back customers who want to cancel or downgrade

Preventing cancellations and downgrades has to be a lifestyle for the commercial and analytics team. For this you can use the Cancellation Insight and, depending on the reason why clients are cancelling or downgrading, you can send an automated email offering, for example, a discount coupon or an Add-on at no cost.

We also emphasize the following: If your business does not have a subscription model, and it is more traditional, then you will have to approach the Revenue Churn from another perspective, but attacking it with the same logic.

Remember: Survey is an essential weapon to measure how satisfied your customers are.

revenue churn mailKEEP YOUR REVENUE CHURN UNDER CONTROL

Well, I’ve already explained to you about this important metric, what it is, what it involves, how to track it and how to anticipate it. Not paying attention to this indicator can be deadly for your business.

Here’s a recap for you:

  • It is very important to monitor your Revenue Churn frequently before negative trends get out of hand. Radix will do all the dirty job.
  • Surveys are your best friend. Remember, there is always something you can do for your unsatisfied clients. Cancellation Insights are key.
  • Keep customer educated. Anticipate any doubt about your service/product. There are many formats and platforms to carry it out.

This is not an overnight kind of job, it takes time to fully keep your Churn Revenue in control, and hit awesome rates…

so, save the trouble and start a Free Trial With Radix.

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Read More:

15 Ways to Reduce Churn: Radix Edition

Types of Churn: Delinquent vs Proactive

Churn Analysis in SaaS Business

Luis Cordero Schiffmann
Luis Cordero Schiffmann
Business Developer Manager & Web3 Passionate MBA with expertise in Science, Technology, and Innovation. I'm a big fan of the crypto revolution, the internet and business.