Understanding Net Revenue Retention and Customer Retention Rate.
NRR is a KPI that helps you assess your company’s growth and your customer’s loyalty. You must be aware of the Customer Retention Rate. It tells you how many existing customers you retained over a specific period. Now, Net Revenue Retention is a little different. It shows you the revenue your business was able to maintain from these existing customers.
Running a SaaS business is not easy. Since your business depends on recurring revenue, you have to retain more and more customers. But even if you succeed in retaining the customers, there is no guarantee they will provide you with the same revenue as before. They could subscribe to a lower value plan. That is where customer retention rate and net revenue retention defer.
Let’s understand with an example. Assume your SaaS business succeeded in retaining 200 existing customers this financial year. However, 50 of them were downgraded to a low-valued plan. Thus, you made less revenue from them, so your NRR is lesser than your CRR.
If you run a small and medium SaaS business, then 90%-100% NRR indicates that your product is good and your company is growing at the right rate. However, if you run a large SaaS business, you require more than 100% NRR. That is because the operations are on a bigger scale and so you need more revenue from your retained customers. Look into the most successful businesses (or in your industry) lately to see what an acceptable rate should be.
NRR helps you estimate what would be your SaaS company’s position without acquiring any new customers. It will help you understand how much revenue you are making from your existing customers over a certain period. NRR has become a popular metric for businesses based on subscription services. It helps you estimate the growth of your business because retaining customers is an integral part of developing your SaaS business.
Why Is Retaining Customers Important?
You can earn revenue from two sources. The first source is your existing customers, who already enjoy your products or services and the second, new customers, who would try it for the first time. Driving more revenue from the existing customer is beneficial because the expenditure is lower. On the other hand, for acquiring new customers, you have run ads, offer discounts, free services, and ultimately increase CAC (Customer Acquisition Costs). So, it is best to try and retain your revenue coming from your ideal customer profile, to which you can provide the most value.
NRR will tell you if you succeeded in keeping your existing customers happy. If your NRR is low, you have to focus on your products and services and upgrade them so that your customers do not downgrade or churn out.
NRR helps you estimate and improve. It is not easy to reach 90+% NRR quickly. You have to become truly data-driven and proactive to best serve all your accounts and not just a small subset of the largest or loudest accounts. Use insights to keep making improvements in your products and services. Retaining customers and revenue will improve your NRR and will result in a thriving business. Adaptive Pulse will help you focus on your loyal customers, convert others, and maintain your CRR as well as NRR.
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