Net Revenue Retention (NRR) is the percentage of recurring revenue that you retain from existing customers over a given time after they’ve made a purchase. The NRR shows how your company retains and sustains the existing customer base and generates additional revenue. It’s a crucial KPI for the current customer retention rates and how successfully they generate additional revenue from customers after they’ve already committed to your company.
Strong NRR demonstrates that a company can successfully renew customers and deliver a strong value proposition to them in subsequent years of the relationship. Measuring your NRR is a crucial part of the customer success strategy. Here’s why you should measure it:
Reflects your product performance
Net Revenue Retention measures the overall revenue generation from your existing customers. Factors that influence your Net Revenue Retention measures the customer churn, subscription downgrades by customers, new customers, and upgrading of subscription plans. Combined with the recurring revenue levels, a Net Revenue Retention of above 100% indicates that your business is healthy and capable of surviving without new customers. It also reflects the performance of your service upgrades and cross-sell success.
It’s a measure of growth for investors
A healthy NRR above 100 means your revenue is on a positive uptrend. More revenue indicates growth as a SaaS business and reliable service to existing customers. Investors are keen on customer success, and an impressive NRR indicates your stability and growth potential, raising your chances at critical valuations, acquisitions, and IPOs. An NRR of above 100% indicates reduced investment risk and efficient, sustainable revenue for the business and products, a green light for SaaS investors.
Possibility of a higher company valuation
Since your NRR indicates company growth and can be used to forecast future growth. Investors can use the NRR to determine where to value your business since valuations, excellent customer retention, and revenue retention goes hand in hand. With healthy NRR numbers, your company can demonstrate the growth and performance of your product and drive higher valuation. A high NRR clearly shows how much value your customers realize from your products, foreshadowing even higher levels of customer retention and impressive Customer Health Scores (Churn Scores).
Less pressure to sell
An NRR above 100 means your business isn’t relying on new sales to stay on a revenue uptrend. A higher NRR indicates compounded revenue and higher growth across the board that isn’t tied to making new sales, despite them being a critical piece of the puzzle. This relieves pressure on sales teams and strengthens the delivery to customers already in the funnel and converted.
Measure customer success with NRR
Growing your SaaS company is easier when you’re not losing revenue and customers. When existing customers reinvest in your products, your bottom line is not a worrying trend, and your metrics and Key Performance Indicators (KPIs) like NPS inspire business growth. The Net Revenue Retention is a north star metric for startups. It allows your company to shift focus to accounts that have the potential to grow over time and maximize the value proposition.
