15 Actionable Ways to Improve NRR for Your SaaS Business

Net retention rate, or NRR, is an important SaaS performance metric. It measures how many users remain subscribed to your software after so many months. As a result, it gives you insights into the health of your customer base, allows you to predict future revenue, and helps you take corrective actions to avoid churn.

It may sound complicated but understanding net retention rate in SaaS is actually pretty simple. This article covers everything you need to know about net retention rate and its significance as a performance benchmark for your SaaS business.

What is Net Revenue Retention in SaaS?

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Net revenue retention, sometimes called net retention rate, or NRR is the ratio of MRR over ARR. MRR is the revenue from customers who have been with the business for a given time period (e.g., six months). ARR is the total upfront amount of MRR from all customers across all time periods.

As such, net retention rate can also be expressed as the percentage of MRR to ARR. In short, net retention rate is the percentage of MRR remaining after a period of time. The period of time typically varies across industries, but some common time frames are 30 days, 90 days, and one year.

Why is Net Revenue Retention Important in SaaS?

Net retention rate is an important metric to track because it gives you insights into the health of your customer base. It can help you identify churn and take corrective actions to avoid losing users.

Net retention rate is a more accurate measure of your business’s health than MRR because it takes into account customers who cancel. MRR only takes into account new customers and ignores those who cancel their subscriptions and stop using your software.

Why Should You Measure Net Revenue Retention Scores?

Understanding net retention rate will help you understand how loyal your SaaS customers are. If your net retention rate is low, you may want to consider taking some actions to boost it. You can do this by following up with your customers, sending them personalized messages, and including thank you gifts or discounts.

How To Calculate Net Revenue Retention?

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To calculate net retention rate, you’ll first need to determine your monthly recurring revenue (MRR) and annual recurring revenue (ARR). ARR is the total amount of money you’ve collected from customers across all time periods. MRR is the money you’ve collected from customers in a given time period (e.g., six months). You can calculate the net retention rate by dividing the MRR by the ARR.

What is a Good Net Revenue Retention Score?

When it comes to net retention rate, there is no one standard or correct score. In fact, net retention rate is not a standalone metric. Rather, it’s an indicator of other important metrics in your business, such as customer satisfaction, churn rate, and retention rate. It can also help you gauge your performance against competitors.

That being said, you can use net retention rate as a benchmark to determine your business's health and growth potential. For example, a net retention rate of 50% suggests that half of your customers from a given time period will remain after one year. Therefore, you could say a good NRR is anything in excess of 100% because that would mean you are gaining rather than losing customers.

15 Ways to Improve Net Revenue Retention

Now that you know what NRR is and why it’s important for SaaS businesses, you might be wondering what you can do to improve your company’s net revenue retention. Well, there are a number of strategies that have proven to be effective. Let's go over 15 of the best ways that you can improve your SaaS company's NRR so that you can reduce churn and increase customer loyalty.

Improve Your Customer Support

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The first thing you can do to improve the net retention rate of your SaaS is to improve your customer service. If you have unhappy customers, they are more likely to churn, which will negatively impact your net retention rate. To improve your customer support, you should aim to create a customer-friendly culture that is always welcoming and positive. You should also make sure you are taking advantage of tech like cobrowsing and session replays to proactively diagnose and fix issues, and speed up resolution time.

Optimize the Onboarding Experience

When customers first sign up for your software, they go through a process called onboarding. The onboarding experience is critical to the overall user experience and can make or break a new user’s decision to continue using your software. If your onboarding efforts are not optimized, you could be losing a lot of potential customers.

Collect and Analyze Feedback

Net retention rate is heavily influenced by your customers’ satisfaction with your product. So, you should make sure that you are regularly collecting feedback from your customers to see what they think of your product. If you are not collecting feedback from your customers, you are missing out on valuable insights that can help you optimize your product and improve your net retention rate.

Upsell Whenever Possible

When you upsell to your customers, you are offering them additional products or services as part of a single purchase. You can offer them additional add-ons, upsell them to a more robust plan, or create a tiered subscription model. When you upsell to your customers, they are more likely to remain subscribed to your software in the long run, which will increase your net retention rate.

Implement Usage-Based Pricing

Usage-based pricing is a pricing model in which you charge your customers based on how much they use your software. Regardless of what type of SaaS you run, you should consider implementing usage-based pricing. This is because it encourages customers to use your software more often, which will increase your net retention rate.

Contact Customers Proactively

You should make it a habit to regularly reach out to your customers. When you contact your customers, you can identify potential issues, request feedback, and upsell to your customers. You should also make sure to customize these efforts and include personalized messages, offers, and content. This will help you to connect with your customers better and increase your net retention rate.

Reward Your Loyal Customers

One of the best ways to improve your net retention rate is by rewarding your loyal customers. You can provide a variety of rewards to your customers, such as discounts, credits, free upgrades, or gifts. This will increase your net retention rate and make your customers happier in the process.

Keep Adding Value

The most important thing you can do to keep customers happy is to keep adding value to the product or service that you’re offering. It's critical to keep your users' needs met and to always be exceeding their expectations; otherwise, they'll eventually churn. So, as you're planning new features, keep your users and their challenges in mind.

Offer a Free Trial

Another way to keep customers happy is to offer a free trial. Although you may worry that a free trial might lead to an increase in cancellations, the opposite is likely true. A free trial lets customers try out your software and decide whether or not it meets their needs. If it doesn’t, they’re more likely to cancel their subscription than if they didn’t get a free trial.

Identify Users Who Might Churn

After users submit tickets to your support team, you can use those tickets to identify trends. For example, if you see a large volume of tickets related to a specific issue, you can reach out to those users and offer them a solution. If you notice that a significant number of users are canceling their accounts, you can follow up to better understand the reasons why. You can then try to solve those problems to prevent further churn.

Provide Offers to At-Risk Users

If you know that certain users are at risk of churning, reach out to them proactively and offer some type of discount. You can use data from your customer support system to segment your users based on their usage patterns. Then, you can reach out to those segments with offers to reduce the price of your product or extend their contracts.

Don't Immediately Cancel Service for Failed Payments

If a customer fails to pay for their service, don’t immediately cancel their account. Instead, send that customer an email that lets them know about the missed payment and gives them a grace period to correct the issue before cancellation. By giving your customers this grace period, you’re much more likely to prevent them from churning.

Offer Discounts for Longer Commitments

Another way to reduce churn is to offer longer commitment contracts to existing customers. For example, you can offer a discount if users commit to a one-year contract instead of a six-month contract. If you offer longer contracts, your user base might grow at a slightly slower pace; however, this will help your team focus on providing better customer service and significantly reduce churn.

Build a Support Community

Support communities allow users to help each other while using your product. One way to build this sort of community is to host online and offline events that engage users and encourage them to provide support to each other. Hosting regular events in person can also help you build a stronger relationship with your customers, which can improve your NRR.

Don't Keep Making The Same Mistakes

Finally, don’t keep making the same mistakes. If you’ve been losing customers, look for patterns. What mistakes are you making that lead to churn? What can you do better? Track your support tickets to see if there are any recurring issues you can address. Remember, if you keep making the same mistakes, you’ll never improve your net retention rate.

Summary

Net retention rate, or NRR, is an important performance metric that measures how many users remain subscribed to your software after a certain period of time. It gives you insights into the health of your customer base, allows you to accurately forecast revenue, and helps you take corrective actions to avoid churn. By following the advice in this article, you’ll be able to increase your net retention rate and grow your SaaS.

Author

Shifa Rahaman

Content Marketing Manager

Contributor