[Digital Products] What is the difference between revenue churn and client churn?
Revenue Churn is a measure of the lost revenue for a business model based on subscriptions, calculated in terms of client churn and the total revenue over a period.
Client churn is the amount of clients who are no longer users or clients. It is important to know how many are they, and the reasons why that happened, because you need this data to improve your digital product, to reduce the churn.
There is an important difference between revenue churn and client churn. Client churn will always be a positive number, but the revenue churn can end up being negative. How? The revenue growth from your existent clients must be higher than the revenue churn from clients who are cancelling the service on that month, without considering the revenue from new clients on that given month.
See on the following image the difference between client churn and revenue churn:
How is it possible to have negative churn?
The negative churn occurs when your existing clients use more of your software product and they have to pay for it, and revenue gain exceeds revenue lost from existing customers who purchase less over time, including clients churn. For example, when clients upgrade a service plan with more features, when they hire additional services, when they pay for additional use, or when they buy more access accounts..
This will make your product to grow more than the amount of new sales per month, because with a negative churn, even if you don’t have any new sale your revenue will grow due to the revenue increase from existing clients. That’s why negative churn is considered the “Holy Grail” of products that have a business model based on subscriptions.