One of the holy grails of successful SaaS businesses is having the expansion of existing customers outweigh customer churn. Meaning, if the business didn’t sign any new customers in a year, the upgrades from existing customers would be more money than the lost revenue from customers that leave, resulting in growth for the company. A business that doesn’t have to sell anything new, but still grows, is in an enviable position.
Here are a few benefits when customer expansion outpaces churn:
- More Money to Acquire Customers – When customers regularly grow their account, more money can be spent to acquire the initial account, providing additional options for customer acquisition.
- Faster Growth Rates – The law of large numbers starts to kick in making it hard to grow fast at greater scale. When customer expansion is more than churn, it makes it easier to grow faster as there’s a built-in growth engine.
- Raising Money – Investors look for unit economics that show the fundamentals of the business are strong, and excellent customer expansion, along with customer renewals, and gross margins are three of the most important metrics making it easier to raise money.
Customer expansion outpacing customer churn is the hallmark of a successful SaaS company.
What else? What are some more thoughts on the importance of customer expansion being larger than customer churn?