What is Net Revenue Retention?
Net Revenue Retention (NRR) Also known in the form of “net dollar retention (NDR)” is a critical KPI for performance used by SaaS and subscription-based businesses.
NRR is significant in the SaaS business because it’s not just a gauge of customer retention, but the ability of a business to maintain high engagement levels and constantly upgrade its current offerings to be able to meet (and exceed) the demands of its clients.
The capacity to gain new customers is only one aspect of the pie, the other one being long-term retention and retention of those customers, and increasing the revenue from expansion.
Recurring income from subscriptions or multi-year agreements is vital for SaaS businesses to sustain their current (and the coming) growth.
That being said repeat customers – i.e. long-term relationships with customers are the main source of regular revenue. This is the result of the high rate of retention, consistent engagement, and tangible improvement after feedback.
Why Does Your Net Revenue Retention Rate Matter?
The Net Revenue Retention Rate is a broad measure that takes into account declines or churn (i.e. loss of value for customers) and also for expansions and upgrades (i.e. cross-sells or upsells for current customers).
Net revenue calculations are essential to determine the rate that you’re keeping revenue and help you determine the trajectory of growth for your company. For instance, if you stop adding new customers today what revenue would you anticipate earning next month? How about next quarter?
How to Increase Your Revenue Retention Rate?
Because revenue retention is directly in contrast to churn, we can employ the same strategies that we employ to cut down on the churn rate to improve the percentage of revenue retained.
This begins and ends by making sure your customers are happy by (but not only) providing improvements or a successful team, as well as finding new ways to maintain the customer who is close to churning.
Let’s look at all of them in more detail.
- Offer Upgrades
Based on the revenue retention calculation the importance of upgrades is evident. Offering your customers, the option to purchase additional options or products, as well as upgrading to a more expensive subscription tier, or adding additional tools could have a significant impact on the retention of revenue.
Any chance to boost expansion MRR could lead to an increase in the rate at which you retain revenue.
- Invest in Customer Success
Did you realize that U.S businesses lose over $62 billion annually because of poor customer care?
This is a lot of money that could be invested back into a business. While you may prefer to solely focus on developing your product at the beginning phases of your business You should also have a customer support team prepared to keep the initial customers happy.
- Offer Alternatives to Churned Customers
Breakups are difficult. However, not all customers who have been churned must be a lost cause!
There are plenty of options to offer alternatives for customers who are willing to quit. This could include the option of allowing them to upgrade to a lower level or offering a discount to retain the customer.
A downgrade can impact your retention rate however, a decrease in a certain amount of sales per consumer is simpler to accept rather than losing the customer completely.
More details about the Net Retention Ratio
Maintaining customers is essential to running a profitable and healthy business. An increase in Net Retention (NRR) also known as Net Dollar Retention (NDR) is an indicator that your offer is an outstanding value proposition for your clients.
NRR is an indicator of how a company is able to not just renew, but also earn additional revenue from customers following a first sale, which is often called the “land and expand” strategy. NRR is also a key element of profitability.
New customer acquisition can be between 5 and 25 times more expensive than keeping an existing client. By retaining and growing those customers you already have, you can reduce the customer Acquisition Cost (CAC), thus increasing your profits.
A high rate of growth for the company and a high NRR are both associated in accordance with SaaS Capital research. Experts at SubscriptionFLow also discovered that the use of mature customer success practices is associated with better net dollar retention.
To gain complete knowledge of the retention process, it’s essential to keep track of both the percentage of customers who renew or end contracts, as determined through logo churn, as well as the proportion of revenue dollars that are under contract that is renewed.
Conclusion
It’s a known fact that a customer who is happy will spend more money on your business than a brand new one. If you’re selling your software at $50 per month, then your objective as a SaaS specialist should be to determine to increase this number to $100 per month.
It is essential to figure out ways to grow your business by partnering with your existing customers. This is perhaps the most significant change in the business model SaaS has provided.
In the case of expansion of a business by acquiring existing customers, keeping the revenue that is recurring and preventing revenue churning is obviously the most essential objective. However, that’s not the end of the story.
In addition to cross-sells and upsells as well, you need to revise your SaaS pricing frequently. However, this must be backed by a few rationales. Inflation is certainly the most obvious, but it is not more convincing to clients than regular updates to the product and enhancements.