Why net revenue retention should be a key measure of growth

Among the panoply of KPIs that SaaS providers might look at, Net Revenue Retention (NRR)is probably the most accurate and transparent.

 What is Net Revenue Retention?

 

Net Revenue Retention, in SaaS terms, is best defined as the percentage of recurring revenue received from current customers in a given time period.

 

In other words, a measure of the retention rate of subscribers, adjusted to include those who downgrades their subscriptions or cancels completely.

 

Let’s say you have 1000 subscribers over 30 days.

 

800 of them have paid and active subscriptions.

150 of them have free subscriptions only

50 of them downgraded their subs to free during this period

 

This gives you a NRR rate of 80%, with the possibility of enhancing this by following two complementary approaches:

 

- Getting the 15% who have free subscriptions to upgrade

- Retaining or regaining the 5% of downgrades

 

You’ll never achieve 100% NRR with existing customers (although you can of course win brand new users too) but you can raise it considerably by using a range of sales and marketing strategies.

 

Why Retention is Important

 

With a largely digital business, it can seem at times like there’s a potentially limitless pool of potential clients, therefore one ought not to worry about customer retention too much.

 

This is a mistake for several reasons:

 

·     A fast churn rate may signal problems with your product.

·     Poor customer retention can lead to bad user reviews.

·     Your reputation may suffer when clients flee to your competition.

·     You may be missing opportunities to build loyalty and upsell new products.

·     Market segmentation could mean your client pool is smaller than you think.

·     You may be losing revenue in an absolute sense.

 

Let’s un pack that last point a little.

 

Rob Markey, writing in Harvard Business Review, has crunched the numbers:

“loyalty leaders—companies at the top of their industries inNet Promoter Scores or satisfaction rankings for three or more years—growrevenues roughly 2.5 times as fast as their industry peers and deliver two tofive times the shareholder returns over the next 10 years.”

 

How to Increase Net Revenue Retention

 

There are several fronts on which you can win the battle for customer retention, and increase your NRR rate towards that mythical 100%.

 

1: Improve your Product Range.

 

Rather an obvious one, but it’s always worth doing regular customer satisfaction surveys, focus groups and other forms of market research to determine if you’re providing what your customers need and want.

 

When you know what’s working and what’s not, you can improve your product offering accordingly.

 

2: Improve your Pricing Options.

 

This could prove the most cost-effective option. Perhaps you offer an annual subscription but not a pay monthly option? Could you offer an intermediate package which slots between your free and premium versions?

 

Have you considered bespoke enterprise pricing as an alternative to high end subscriptions? Are you pricing by number of users, by range of services, or by some other metric?

 

3: Improve your Customer Support.

 

Fast, proactive customer support is one of the best ways of retaining customers and encouraging repeat purchases. According to research conducted by Microsoft, 90% of Americans cite customer support as a prime consideration when choosing a company to do business with.  

 

Microsoft’s research also showed that 58% of customers will switch providers after bad a bad customer support experience. By contrast, studies from Salesforce showed that 89% of customers will make a subsequent purchase when their customer support experience is good.

 

 

Conclusion

 

NRR, when considered as an indicator of overall customer retention, can provide meaningful insight into how successful your SaaS business is.

 

Focusing on how satisfied your existing customers are, and keeping them onboard for the long-term, can make a real difference in ensuring your product is top of the range, and turning in a healthy profit.

Author

Emma Bakh

CX Manager

Contributor