What is net negative churn?
Net negative churn exists when the MRR (monthly recurring revenue) gained from existing customers (expansion and reactivation) exceeds the MRR lost from churn and contraction. It is known as the holy grail of SaaS and is the only kind of churn you want. Simply put, the revenue added by retained and growing customers outweighs the revenue lost from those who leave or contract.
Net negative churn rate formula
Your net MRR churn rate will be negative if the MRR gained from existing customers (expansion and reactivation) exceeds the MRR lost (churn and contraction). So, to calculate negative churn, follow this formula:
Example
Let’s say a SaaS business charges $10 a month per user seat. With 200 clients, their MRR stands at $2000. 50 clients churn, that’s $500 lost. But 20 clients add 3 user seats; adding $600 in revenue. Following the formula above: ($500 – $600) / $2000 = -0.05. The Net Monthly Recurring Revenue Churn is -5%.
In this example, despite experiencing a churn of 50 clients, there was still a gain of $100 in existing expansion revenue.
What's a good churn rate in SaaS?
Are you wondering where you stand, churn-wise, amongst your SaaS peers?
In our SaaS Benchmarks Report, we analyzed data from over 2100 SaaS companies to derive insights about key metrics, including churn rate.
Churn rate by ARR range
| New MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 0.2% | -0.4% | -1.2% | -0.8% | -0.8% | -1.1% |
| Good / Top quartile | 2.4% | 0.8% | 0.3% | 0.2% | -0.1% | -0.4% |
| Ok / Median | 6.2% | 3.1% | 2.3% | 1.6% | 1.4% | 1.8% |
| Can be better / Bottom quartile | 12.3% | 6.7% | 5.5% | 4.1% | 3.1% | 5.4% |
| Gross MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 2.5% | 2.0% | 1.6% | 2.0% | 1.6% | 1.5% |
| Good / Top quartile | 4.8% | 3.6% | 3.0% | 3.3% | 2.8% | 2.2% |
| Ok / Median | 4.1% | 5.7% | 5.3% | 5.3% | 4.0% | 5.8% |
| Can be better / Bottom quartile | 16.5% | 10.5% | 9.0% | 9.5% | 8.0% | 11.1% |
| Customer Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 1.5% | 1.4% | 1.3% | 1.3% | 1.5% | 1.3% |
| Good / Top quartile | 3.2% | 2.5% | 2.2% | 2.3% | 2.0% | 1.7% |
| Ok / Median | 6.5% | 4.1% | 3.7% | 3.8% | 3.1% | 4.1% |
| Can be better / Bottom quartile | 11.6% | 7.3% | 6.9% | 6.5% | 5.6% | 7.4% |
Negative churn is a powerful growth mechanism
A high churn rate is the Achilles’ Heel of any growing business. Tomasz Tunguz (Redpoint Ventures) illustrates this perfectly in this post:
Because churn compounds (just like recurring revenue), a 5% churn rate over time can severely limit the growth of a business.
There’s no one-size-fits-all solution for any product—churn is inevitable. But negative churn is an indicator that your product is providing value to your ICP and target audience.
Tomasz Tunguz, Venture Capitalist at Theory Negative churn is a very powerful growth mechanism. When thinking through your pricing model and your customer success strategy, it’s worth trying to engineer negative churn into your startup.
When you have negative churn, existing customers generate more money each month. A natural consequence of negative churn is revenue growth. Your business is growing its revenue base, even with some customer churn.
Negative churn benchmarks
Our analysis showed that 40% of businesses in the $15-30M ARR range achieve net negative churn.
Here are more benefits of negative churn:
Customer retention
Once you have negative churn, your business is successfully retaining and expanding its revenue with existing customers, leading to longer customer lifecycles, reduced churn, and increased revenue stability.
Nick Franklin, Founder & CEO at ChartMogul In reality, for every B2B SaaS business retention becomes the biggest growth driver in a way. So it is worth focussing on retention really from day one, perhaps even before you actually have any meaningful retention data to look at.
Retention measures how well you can retain and expand revenue from your existing customer base. For any SaaS business, you can measure it in three ways: customer retention (aka logo retention), net revenue retention (NRR), and gross revenue retention (GRR).
Increased customer lifetime value (LTV)
Satisfied and loyal customers who continue to use and expand their usage of your SaaS product contribute more revenue over their lifetime. Expansion revenue costs less than new logo acquisition. This is good news for your LTV:CAC ratio, CAC payback period, and LTV.
Cost efficiency
Focusing on retention and expansion is cost-effective compared to acquiring new customers. It minimizes the need for expensive campaigns, ensuring better ROI on your existing investments.
Positive market perception
A high retention rate signals strong product value and customer satisfaction, bolstering your reputation. This creates a competitive advantage, attracts investors, and reduces revenue churn—all while strengthening customer trust.
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How to achieve net negative revenue churn
Reduce existing customer churn
Reducing churn is no simple feat, as its root causes are often complex and multifaceted. These can range from issues with UX/UI design and ineffective product adoption strategies to challenges with pricing or gaps in core product features and functionality. Identifying and addressing these factors requires a deep understanding of customer needs and behaviors.
Facilitate expansion revenue in your pricing model
How can your business achieve negative churn? By building a pricing model that has an expansion loop within it. This is the only sustainable way to get to negative churn. Pricing structures that expand with the customer are one way to head toward a negative churn rate. There are many ways to do this, some examples are using pricing tiers by revenue/sales, bandwidth/data usage, number of servers, or number of employees.
Up-sell and cross-sell
Make sure your existing customers are getting the most from your product. This means upgrades and seat expansion. This will all tie into your pricing strategy, what additional features will come with what price tiers, and how many seats are in a package. Driving expansion revenue from existing customers increases your chances of getting to net negative churn.
Customer success team
If you’re not already, get serious about proactive customer success. Having a team dedicated to nurturing your customers is crucial. Your CS team are the people who will maintain relationships and make sure customers are achieving their goals with your product. Keeping an eye on product usage they will be able to tailor upsells that actually make sense to clients.
Ingmar Zahorsky, VP Customer Success, ChartMogul Guided onboarding that starts during the sales cycle helps us to convert and retain accounts with complex requirements. First, our solutions engineer analyzes the prospect’s setup and prepares a detailed implementation plan. Then, after the sale, our customer onboarding specialist guides the customer every step of the way.