Revenue Churn: what it is and how to calculate it

[shukla7789]

What is revenue churn?
Learn how to calculate revenue churn
Gross revenue churn calculation
Calculation of net revenue churn
Reasons why revenue churn happens
Achieve good revenue churn with 5 practical tips
Provide a quality user experience
Promote customer loyalty
Work on priority customer segments
Provide automatic payment methods
Offer custom pricing plans
Have a Customer Expansion strategy
Customer retention is extremely important for any business: reducing churn and keeping revenue high from each contract needs to be a priority.

Whether it’s canceling your service, not renewing it, or line database downgrading, it’s a sign that your offering may not add value in the long run. And the result is a negative impact on revenue churn and the likelihood of establishing lasting relationships with your customers .

Looking to learn more about revenue churn and practical tips to reduce it? Keep reading!

banner-blog-structure-cs
What is revenue churn?
Revenue churn is a metric of how much revenue a company loses when a customer cancels a contract or downgrades to a cheaper plan, in the case of SaaS companies .

It is important to always monitor this indicator to ensure the company's financial sustainability and the health of the business.

There are two types of revenue churn:

Gross revenue churn : The portion of total monthly revenue that is lost when customers cancel or do not renew subscriptions.
Net revenue churn : The portion of total monthly revenue that is lost when customers cancel or do not renew subscriptions, reduced by any additional revenue captured through service upgrades and expansions from remaining customers.
Both metrics are important to track. While Gross Revenue Churn only looks at revenue loss in isolation, Net Revenue Churn takes into account this data related to revenue increases generated by contract upgrades, giving a more general view of the health of your customer base.

It is also important to differentiate Revenue Churn (whether gross or net) from the so-called Customer Churn, which refers to the percentage of loss of the absolute number of customers, without taking into account their revenue .

Learn how to calculate revenue churn
Gross revenue churn is the percentage of your revenue lost during a period due to customers canceling or downgrading.

Gross revenue churn calculation
Gross revenue churn % = Revenue loss from existing customers in a given period / Total revenue at the beginning of the period x 100

Net revenue churn is a critical indicator of financial health, representing the percentage of revenue lost from existing customers in relation to revenue gains in the same period.

To calculate net revenue churn, divide the net revenue lost from existing customers in a period by the total revenue at the beginning of a period. The lost amount is calculated using the following equation: the difference between lost revenue minus new revenue from existing customers (i.e. upsells).