What is NRR?
Net Revenue Retention (NRR), also known as net dollar retention (NDR), measures the percentage of revenue retained over a period of time, after gains from expansion and offset by contraction and churn.
Retention can be measured over any time period, but it is common to measure it over 12 months. For example, if you have $100k MRR on day one, what percentage of that revenue do you still have 12 months later?
Calculating Net Revenue Retention (NRR)
To calculate net revenue retention, divide your monthly recurring revenue (MRR) today from customers one year ago by MRR from the same group of customers one year ago.
Let’s look at an example:
If one year ago, you had four paying customers with a total MRR of 770. In today’s time, some of those will have churned, contracted, or expanded so the total MRR from the same group of customers now is 800.
To find the percentage of NRR, you simply divide the 800 by 770, which is 103.9%.
What is a good Net Revenue Retention rate in B2B SaaS?
When it comes to NRR, what is ‘good’ depends on the stage of business you are at. However, B2B SaaS companies should aim for over 100%.
Net retention can be poor to begin with, with the best-in-class early-stage companies usually sitting around the 79% mark. This is due to the product-market fit still being figured out.
When benchmarking, always keep the stage of your business in mind.
As companies reach scale, and become category leaders, net retention often goes over 100%. Businesses with ARR in the range of $1-3m have a top quartile net retention rate of 94%. Those in the $3-15m ARR segment, have a top quartile net retention rate of 99%. Businesses at scale with ARR in the range of $15-30m have a top quartile net retention rate of over 105%.
Net revenue retention rate (%) by ARR range
- 75th percentile
- Median
- 25th percentile
| Net revenue retention rate | 75th percentile | Median | 25th percentile |
|---|---|---|---|
| <$300K | 79.2% | 57.6% | 37.8% |
| $300k-1M | 87.4% | 70.2% | 48.1% |
| $1-3M | 94.2% | 77.9% | 57.8% |
| $3-8M | 98.9% | 82.1% | 61.0% |
| $8-15M | 99.1% | 81.3% | 66.9% |
| $15-30M | 105.3% | 93.4% | 64.3% |
Net Revenue Retention growth benchmark
While it’s always important to measure your NRR and use the information to drive your business forward, knowing what SaaS growth look like for others can help you glean further insights.
Comparing yourself against others allows you to see how well your business is doing, how your NRR stacks up with competitors, and an overview of the highs and lows in the industry.
To do this, identify your performance metrics against industry standards with ChartMogul’s Benchmarks.
When benchmarking, you should keep ARPA (average revenue per account) in mind. This is because SaaS companies that are at a specific ARPA band can be quite similar in terms of the sales cycle, tenure of contracts, discounting, onboarding, and even retention strategies.
Why is NRR important?
Retention is not a silver bullet, but for SaaS, it’s the closest thing to it.
Better retention means better growth. Companies with a net retention rate over 100% or gross retention over 85%, grow 1.5-3x faster.
If you’re looking for funding in the future, the results of measuring the NRR tell potential investors (if the percentage is high!) that you’re able to grow revenue cost-efficiently and have loyal customers. NRR shows value of the product, can steer pricing strategies, and allows you to understand customer behavior better.
High retention is a strong indication of product-market fit. Retaining customers is proof that you are solving a real problem and are adding value to your customers. Your audience clearly sees the need for the business and so they’re happy to keep paying for it.
It’s a way to see how well the business is upselling to customers which is a more cost-effective way to increase revenue in comparison to acquiring new customers from scratch. While this should always be strived for, retaining and upselling are usually a more affordable strategy.
Once measured, you’ll typically have a much greater understanding of future revenue predictability too which will help to forecast future revenue, plan budgets, and make strategic decisions.
Net vs Gross Retention
Both GRR and NRR are important metrics to measure customer retention, but they are used in different contexts.
In short, GRR is useful when a company wants to measure its core customer base’s retention without factoring in any expansion revenue, while NRR is useful when a company wants to measure the overall revenue growth from its existing customer base, including expansion revenue.
GDR and NDR are both important metrics to measure customer retention and revenue growth, and the choice of which metric to use depends on the specific context and goals of the analysis.
Tracking Net Revenue Retention
Retention can be measured over any time period, but it is common to measure it over 12 months. Analyzing retention over 12 months works well for both annual and monthly subscriptions. It allows for the full customer lifecycle, including adoption and expansion. And it also nullifies any impact from seasonality, which can cause short-term fluctuations. If you’d like to track shorter intervals, make sure to look at the same intervals consistently.
ChartMogul calculates all of your core SaaS metrics by importing, cleaning, and analyzing data. It then renders them into easy-to-see dashboards and charts that are fully customizable.
How to improve Net Revenue Retention
For any business, retaining customers is critical. Without a focus on retention, customers could be leaving quicker than it takes to acquire new ones which could bring in a loss and cause plans to be halted. With a high NRR comes a company that is not only retaining its customers but is successfully upselling and cross-selling additional services too. This all helps the bottom line and provides more predictability for revenue going forward, whilst instilling confidence in potential investors.
That’s why it’s important to grow the retention rate as much as possible. Here are ways to drive better business decisions and improve net revenue retention.
Understand customer needs and deliver value
It ultimately comes down to the customer's experience and perspective.
Once you know the business's current retention and expansion levels, you can focus interests and priorities on delivering value to current customer. Engage all relevant departments and stakeholders and ensure everyone is aware of retention as a priority going forward.
Reduce churn
Reducing churn is a key way to improve net revenue retention. After doing the calculations and identifying the areas and stages where customers have dropped off, ensure you implement a feedback loop to understand what changes need to be made.
This will help you see the product through the consumer's eyes and identify any areas you might be missing.
Another element to this is making sure you’re targeting the right people. A way to reduce churn is to create a solid acquisition strategy that involves attracting good-fit customers.
In addition, don’t let people churn through mistakes like expired cards or anything that contributes to declined payments. The customer probably won’t even be aware they need to update their details, so let them know ahead of time to reduce the potential for them to leave.
Improve training and onboarding
Get your whole team onboard and on the same page with prioritizing retention. While NRR is usually owned by the customer success leader, any team that touches on product, sales, and customer support should be involved.
The onboarding process should be smooth and efficient too. A customer should have that ‘aha’ moment and be able to see the magic of your product almost immediately.
This can be improved upon by creating support and introductory documents that are easy to follow and understand. The sales-to-customer handoff should be focused on too.
Ingmar Zahorsky, VP Customer Success, ChartMogul Guided onboarding that starts during the sales cycle helps us to convert and retain accounts with complex requirements. First, our solutions engineer analyzes the prospect’s setup and prepares a detailed implementation plan. Then, after the sale, our customer onboarding specialist guides the customer every step of the way.
Upsell and cross-sell
If you don’t have a system in place to upsell or cross sell, engage with your audience and understand the market from their perspective. What would be of value to them and how can you integrate that into your business?
If you already have upsell opportunities, make these more visible to the customer. This could include roping in the marketing team to launch specific campaigns tailored to higher-ticket offerings or ensuring the sales account management team is promoting these at relevant moments.