The Downgrades metric measures the number of customers who have shifted from a higher-priced subscription plan to a lower-priced one within a specified timeframe.
With Databox you can track all your metrics from various data sources in one place.
A downgrade is when a customer moves from a higher subscription level to a lower one, resulting in a loss of revenue for the business. This metric is crucial for subscription-based businesses as it could indicate a problem with the service, such as high prices or lack of perceived value at higher plan tiers.
You can calculate your downgrade ratio by dividing the number of customers who have switched to lower-tier subscription plans by the total number of customers. Here’s the exact formula:
Downgrades = Number of customers who downgraded / Total number of customers
Let’s say you have a software company with 1000 subscribers. During a specific period, 15 customers downgraded their subscription plans.
Upgrades = 15 / 1000
This leaves us with a 1.5% downgrade ratio for the specific time period.
What Is an Acceptable Downgrade Ratio
The acceptable downgrade ratio can vary depending on the pricing structure, the business model, the company’s specific goals, and a variety of similar factors. But as a general rule of thumb, a downgrade ratio of below 2% is something many businesses find acceptable.
Just remember that an acceptable downgrade ratio is not a fixed number, but a dynamic metric that changes to your specific circumstances. Regular monitoring and analysis of downgrade ratios, along with customer feedback, will help you determine what is acceptable for your own organization and help you make more informed decisions going forward.
Reducing the number of downgrades and making sure your customers are satisfied with the service is a critical aspect of maintaining and growing your business’s revenue. Let’s take a look at some specific tactics that industry leaders employ in their companies when trying to reduce downgrades:
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Used to illustrate numerical proportions through the size of the slices.
Used to show comparisons between values.
Databox is a business analytics software that allows you to track and visualize your most important metrics from any data source in one centralized platform.
To track Downgrades using Databox, follow these steps:
Usage Upgrades or downgrades are tracked when they actually happen. For example, if a user moved from PlanA ($59) to PlanB ($119) today, an upgrade of $60 will be tracked. The same logic will apply to downgrades.
In cases where the user would switch back and forth, every upgrade and downgrade would be tracked and would influence the upgrade or downgrade amount in Databox. Therefore, Databox suggests using the Calculated Metrics to track the Net New Upgrade or Downgrade values.
Below is an example of the MRR Upgrades metric and the same logic will apply for other Upgrades and Downgrades metrics.
Net New MRR Upgrades = MRR Upgrades – MRR Downgrades
Limitation To calculate upgrades, downgrades, and reactivations we use the /events endpoint. In accordance with the Stripe API documentation, Databox can collect only 30 days of historical data through this API endpoint. For example, if an upgrade occurred 31 days ago, it would not be pushed to and visible in Databox today.
One of the main reasons for downgrades is cost – customers may feel they aren’t getting enough value for their money. Or in some other cases, they may not fully use or understand the features of higher-tier plans.
Other factors that can lead to downgrades include business changes like budget cuts or downsizing, issues with customer service, and dissatisfaction with product performance.
To keep your users from downgrading their plans, you need to consistently demonstrate the value of your higher-tier services.
Try to regularly check in with your customers to catch potential problems before they turn into reasons for a downgrade.
Educate your users about how they can benefit from your advanced features and ask them if they want 1-on-1 assistance to learn the ropes around it.
There is a variety of different ways you can reduce the number of upgrades, but talking to your customers and getting their direct feedback on what they think (and acting on it) is at the core of each strategy.
MRR (excl. Canceled Subscriptions) stands for Monthly Recurring Revenue excluding Canceled Subscriptions, a metric that shows the predictable monthly revenue generated by a subscription-based business model excluding canceled subscriptions. It includes all recurring charges and allows businesses to monitor customer retention and growth.
ARR (excl. Canceled Subscriptions) stands for Annual Recurring Revenue excluding Canceled Subscriptions, a metric that calculates the total amount of revenue a SaaS company generates from its recurring subscription fees in a given year. It's a key metric to measure the growth and predict the future revenue of a SaaS business.
Net Active Subscriptions measures the change in the Active Subscriptions over a specific time period.
Churned Customers (Delinquent) metric measures the number of customers who fail to pay recurring payments and cancel their subscription. This helps to track the loss of revenue due to customer attrition.
Upgrades is a Stripe metric that measures the increase in revenue generated by customers who have upgraded to a higher pricing plan or subscription level.
Net MRR stands for Net Monthly Recurring Revenue and is a measure of the change in the MRR over a specific time period.
Net ARR stands for Net Annual Recurring Revenue and is a measure of the change in the ARR over a specific time period.
The Active Trials metric refers to the count of ongoing trial subscriptions, providing insight into customer engagement and acquisition strategies.