To evaluate the success of a business, it is necessary to take into account all the metrics that give us information to correct possible deficiencies and plan for the future. In this article, you will understand why SaaS companies go to great lengths to keep the NRC or Net Revenue Churn negative.
What is the NRC or Net Revenue Churn?
The NRC or Net Revenue Churn is a measure of the loss of net income that occurs with cancellations, taking into account the income of new customers, upgrades, and other forms of expansion. Simply put, it is the lost income measured over a given period.
For some people, this metric can be confusing. When the loss of NRC or Net Revenue Churn is negative, it means that the company’s income is increasing; when the result is positive, the company is having money loss problems.
SaaS companies try to keep the MRR “Monthly Recurring Income” churn rate as low as possible.
How to Calculate the NRC
To calculate the loss of net revenue, we need to keep track of MRR metrics on hand. If you already track your net income turnover every month, then it won’t be a problem.
Customers often increase their investment, for example, by switching to a more expensive plan; these actions result in an expanded MRR. When this happens, the Net Revenue Churn is offset.
If MRR revenues from expansion exceed those lost due to abandonment, the NRC will be negative, which represents a positive situation for the company: it indicates an increase in income even if no new customers are obtained.
Net Revenue Churn:
(MRR lost – MRR gained by expansion) / Initial MRR 30 days ago x 100
The importance of NRC or Net Revenue Churn
Knowing the MRR net churn rate, you can anticipate changes in revenue that can occur based on current customers. By having the number of losses at a glance, you can have a more realistic look at the business.
If we measure the raw churn rate, the numbers of expansion revenue are not taken into account. The churn rate is inevitable in SaaS industries; therefore, through this metric, strategies to retain existing users can be evaluated.
How to Increase the Net Revenue Churn of Your Business
Creating leads with existing customers can be an easy task if you maintain a good relationship with them. Try to keep your audience updated with new offers, promotions, and discount coupons. Also, you can incorporate personalized sales actions so that users feel special attention.
Higher value and long-term contracts
With good communication with clients, long-term contracts can be obtained. It is important to provide them with pricing options so they can update their plans whenever they want, and thus have a better chance of increasing MRR.
Long-term contracts ensure an income for much longer. On the other hand, short-term plans help decrease the churn rate by allowing users to opt for less expensive plans rather than unsubscribe.
Differential services can be offered to reduce the churn rate. To start, you don’t need to create new products, but rather highlight the premium or VIP services with exclusive benefits. It works well to grant download material, training, integrations with other goods, or any additional features that can be complemented with the product or service that is offered.
A dreaded but necessary practice is raising prices. A sharp change in amounts within the SaaS industry can be tricky, but modifications can be made in moderation. With a small price increase, income could be tripled.
Observe the Churn of your customers
Keep your KPIs organized to keep track of your customers’ Churn: with this data, you can optimize retention strategies. Once the churn rate has stabilized and is maintained without taking big leaps in the statistics, expansion actions can be started.
The task of acquiring new customers is always more difficult than maintaining existing ones; For this reason, it is important to offer a service tailored to users who already trust the brand.
With the Net Revenue Churn metric, you will be able to carry out a calculation of real losses to implement better strategies. This information is especially useful for SaaS industries, which must be able to control the churn rate and reduce it as much as possible to generate higher revenue.