NRR: The New Benchmark in SaaS Success

Sofia: Hi everyone, welcome to our panel discussion. My name is Sofia Faustino, and I am the Senior Manager of Insights here at ChartMogul. Today, we have two panelists with me, and we’re going to talk about retention, specifically NRR (Net Revenue Retention), and maybe some other KPIs as well. We’ll also discuss how NRR has become the new benchmark for SaaS success.

The topic and inspiration for this discussion are closely tied to the recent report we published at the beginning of this month. If you haven't read it yet, I highly recommend it. It's called the "SaaS Retention Report: The New Normal for SaaS." The main idea of the report is that growth in SaaS has decelerated. As you know, there was a significant boom in growth during the pandemic, with a lot of focus on new business and customer acquisition. However, many companies are now experiencing slower growth. While they’re still growing, it's not at the same pace, and a lot of them are focusing on expansion to offset the impacts from the pandemic.

Feel free to ask any questions in the chat, and hopefully, we can answer a few. If not, you’re welcome to connect with me on LinkedIn. I'm happy to answer questions there or connect you with the panelists. Now, I’ll ask the panelists to introduce themselves. Millie, you can start.

Millie: Thank you so much for having me. My name is Millie Barker, and I'm the founder of two software companies. One is called ZipTender, a tender management platform for estate agents in the UK that digitizes the formal and informal tender process. The second is a property portal called AgLand, similar to platforms like Rightmove or Zoopla, but focused exclusively on agricultural land.

Phillip: Hi, I’m Phillip, the founder and CEO of Custify, a customer success platform for SaaS companies. Our platform is closely tied to NRR, as that’s essentially what we focus on. It’s a pleasure to be here.

Sophia: Thank you both! I’ve heard there might be some static on my end, so I apologize for that. Unfortunately, there’s not much I can do about it right now. Let's jump into the discussion. Millie, you can go first on this: has your approach to business growth changed since the boom in 2020-2021? What’s your take on that?

Millie: Fundamentally, I don’t think it has changed much. I think you can tweak your tactics here and there, but my baseline strategy and approach to customer retention haven't really changed. My goal is always to build the best software possible and make your customers happy. If you're ticking those two boxes, you're generally doing okay in terms of what you can internally influence in your company. As long as those are your North Stars, you're pretty much on the right track.

Typically, I build companies to an early stage and then move them on. So, I haven't had a company from 2020 through to 2024 to witness or implement significant internal changes. For me, it's more about building things right from the beginning. That means we shouldn’t ignore customers once we have them. We shouldn’t be entirely focused on acquisition with a "growth at all costs" mindset. This isn't just altruism—it makes financial sense too. You’ve already invested the time, money, and resources to acquire your customers, so it’s important to focus on them rather than just moving on to the next. Some founders are only now starting to realize this.

Now that there's been a bit of a downturn, I think many are focusing on adjusting strategies. However, for me, my approach hasn't fundamentally changed. My baseline is always the same: build the best software possible and make customers as happy as they can be. I don’t believe that needs to change. As long as those core principles remain intact, you're setting yourself up for long-term success, regardless of external circumstances.

Sofia: Absolutely. It’s easy to look back and criticize, saying, "We were growing at all costs, focused only on KPIs, and ignoring sustainability." It’s much easier to say that now, in hindsight, than when you’re caught up in it. I mean, who wouldn't go along for the ride, right? Anyway, Phillip, what’s your take on this? Has your perspective on how you grow your company changed since that period?

Phillip: Luckily, not that much. We’ve been in a specific segment where we actually help other SaaS companies retain their customers and reduce churn. So, we haven't been as directly affected by the slowdown, although some of our customers have been. From our side, there haven’t been many significant changes. However, NRR is still a key KPI for us, and churn and renewals are just as important to us as they are for any of our customers.

Sofia: That’s great to hear. It seems the report might be more applicable to other companies that are experiencing these challenges. My next question is also for you, Phillip. With the slowdown in new business, how has your company shifted towards retention? Even if you weren’t heavily affected, were there any new retention strategies or specific activities you implemented during this time?

Phillip: Yes, definitely. For some of these questions, I can speak both for Castify and for our customers, which might be useful for the audience. Many strategies our customers have implemented can offer valuable insights. When it comes to retention strategies, the first thing to ask is: "What can I do to prevent churn?" Churn is complex and can stem from many areas. For example, the marketing team might attract the wrong customer, or the sales team could close a deal that isn’t a good fit. If you’re bringing in the wrong customers, retention will be difficult because they’re not aligned with what you offer.

Then there's the product itself. Does your product solve your customer’s pain point effectively? Is it reliable, or does it have bugs that cause frustration? After the product, it typically falls into the hands of the customer success team, or whoever owns retention. In most companies we work with, and in our own case, that’s the customer success team. Churn is something you need to look at holistically, involving various departments.

The strategies we’re seeing now involve greater executive buy-in. In 2020, it was all about growth at any cost, especially for VC-funded companies. But now, retention has become one of the most critical KPIs—just like achieving positive ROI. To run a profitable business, growth is still important, but the focus is shifting.

The key strategy we're seeing—and implementing ourselves—is ensuring customers get value quickly, especially during onboarding. Whether it's through product-led growth, where the experience is seamless and intuitive with tours or wizards, or through a sales-driven approach, you need to ensure customers quickly see the value in your product. That’s crucial, even if it takes weeks or months, depending on the complexity of the product.

Another important retention strategy is identifying and addressing potential churn early. For instance, if your product champion at a customer company leaves, it can be a huge risk. If the new team doesn’t see value or doesn’t understand your product, they may not renew. So, staying in contact with key users and making sure they continue to see value is critical. We've implemented strategies to track and stay connected with those champions, ensuring we maintain that relationship even if team changes occur.

Sofia: That’s a great point. Millie, you had some thoughts on churn as well, particularly as an early-stage founder. You’ve mentioned your focus on retention early on to avoid churn. What’s your take on this, and how does it align with what Phillip just mentioned?

Millie: Definitely. I wouldn’t say retention is the only North Star for me from the start, but it’s always been a priority. When you’re launching a new company, especially in software, you’re naturally focused on acquiring new customers and seeing the revenue grow. You're constantly watching the charts go up, and that initial excitement often overshadows the long-term importance of retention. But from early on, I understood that keeping customers happy and ensuring they get value is essential to sustainable growth.

I think most of us have experienced losing a customer because we didn’t focus enough on them after they signed up. Many companies offer shiny deals to attract new customers but neglect their existing ones. We've all been there—whether it’s renewing car insurance, broadband, or mobile phone contracts, where loyal customers end up paying higher rates than new ones. It doesn’t feel good. As a founder, if you’ve ever been in a situation where you lost a customer because you didn’t prioritize their needs or because you failed in customer service, it hurts—and it should. These are the customers keeping our businesses alive. So, if you've experienced that, either as a user or as the one providing that experience, it reinforces the importance of retention. It’s crucial to keep it front and center, even from the early stages.

Some practical ways I’ve tried to implement retention strategies include personally onboarding users for as long as possible. My company sells higher-ticket SaaS products, so I have fewer customers, which allows me to offer a more personalized experience. I also schedule short check-ins—just 5 to 15 minutes—within the first year of the customer’s journey to maintain that personal connection. Customers can say, “I’ve spoken to the founder, and they care enough to answer my questions.”

Another strategy is continual value demonstration. When we release a new feature, instead of sending a generic email or notification, I create a short video where I explain the feature myself and show users how to use it. It only takes a couple of minutes, but it adds a personal touch and helps users feel more connected to the product.

Lastly, I’ve started exploring predictive assistance, which involves using human intelligence or AI to anticipate when a user might churn. For instance, if a user signs up for a CRM but doesn’t connect their email within the first 48 hours, the system could trigger a personalized email offering help. We can use AI to predict these moments now, which makes it easier to act before the customer drops off.

One word of caution: be careful with gamification. It’s been overused in some areas, and while it might work in social media tools, for instance, it doesn’t suit every product. Some people, like me, would turn off those features if we could. So, if you’re going to use it, make sure it aligns with your product and that users have the option to disable it if they find it distracting.

Sofia: Phillip, any thoughts on what Millie just said?

Phillip: That’s spot on. In the early stages, you can manage a lot of what Millie mentioned manually. You can log into accounts and track customer activity yourself. However, when you scale, this becomes much harder. Many of the companies we work with are beyond that stage, where manual intervention isn’t possible anymore, or you’d need to hire a large team just to track these activities.

In customer success, this is often handled by health scoring. You define key KPIs tied to the value customers get from your product. For example, with ChartMogul, it's about how many charts customers have defined and how often they check them. For us, it’s about whether users are completing tasks, logging into the platform, and taking notes. These metrics show us whether users are still getting value from the product. If the data shows they aren’t, it’s a signal to act—either because the onboarding wasn’t effective or because the champion at that company has left.

There are certain factors you can’t control, like if a customer’s business shuts down. But you can focus on the areas where you can have an impact, like making sure customers are still seeing value or ensuring that you’re attracting the right type of customers in the first place. Sometimes, it’s tough for founders to admit that they’ve attracted the wrong customer, but being honest about that can help avoid future churn.

Sofia: That makes perfect sense. Since we're discussing metrics, I wanted to ask who should own retention and net revenue retention (NRR). Millie, maybe you can share your thoughts, and then Phillip can follow.

Millie: I would flip that question and ask, who shouldn’t be responsible for making customers happy? It’s really a collective responsibility. If our customers are unhappy and churning for reasons within our control—like product issues or positioning—then everyone in the organization should feel accountable. Marketing makes promises, sales ensures those promises are kept, and developers create the solutions. We’re all involved in delivering solutions to customer problems. If one part of the company shirks that responsibility, I wonder what they're doing there.

Of course, practically speaking, it’s hard to implement. You can’t say that literally everyone is responsible, but everyone needs to be aware of retention within their own roles. It’s a cultural issue. If we keep churn and retention in mind, it means we’re doing everything possible to keep customers satisfied. The founder sets this culture and tone, but ultimately, everyone has a role to play.

When it comes to key metrics, individual responsibility becomes more important. Phillip can likely speak to that better because of the larger teams he works with, while I’m in an environment where everyone wears multiple hats.

Phillip: I agree with Millie. The scale makes a difference.

Millie: One thing I’d add is that it’s a huge red flag when a founder refuses to address churn. I’ve seen founders ignore it, blaming sales or marketing instead of taking ownership. Churn can feel personal for founders. They’ve invested a lot—financially and emotionally—in their product. When customers churn, it feels like a rejection of their hard work, as if the product isn’t solving the promised problems or that competitors are doing it better. This hurts and leads some founders to avoid confronting the issue, which is concerning. In my consulting experience, I always tell founders that this is their problem to solve. If churn is happening, they need to investigate why, instead of passing the buck.

Phillip: In terms of ownership, I agree that theoretically, everyone owns retention. In many companies, the customer success team is formally responsible, but it gets nuanced. For example, while the customer success team might partner with the customer, renewal conversations often fall to sales. Support also plays a crucial role. If customers have a poor support experience, they might not renew, regardless of how good the product is. Therefore, everyone ultimately shares the responsibility for retention. It’s a critical KPI because if that number is low, it signals issues in customer acquisition or product effectiveness.

Now, regarding NRR, it reflects which customers are willing to spend more. For instance, 100% NRR means you’re not losing any revenue but also not gaining new customers. An NRR of 110% means existing customers are spending 10% more. The customers likely to spend more are those who are themselves growing and can afford to invest more in your product. If you’re attracting customers who are struggling financially, they’re unlikely to increase their spending.

Additionally, customers won’t spend more if they don’t see the value in your product. If a customer is dissatisfied—like having poor reception with a mobile contract—they won’t be motivated to switch or spend more. That’s why NRR is such a powerful KPI. It's a clear indicator of a company’s health, and everyone aims to be above 100%. This means your expansion efforts are covering churn, or ideally, you have no churn at all, with slight expansions in revenue.

By definition, NRR measures the total revenue from expansion minus revenue lost from contractions—when customers remain but reduce their spending. They often ask for discounts, shrink their usage, or leave entirely. Therefore, expansion needs to outweigh the negative factors of contraction and churn. This is not an easy challenge to tackle. Sofia, you probably have more data on how many companies you work with that actually achieve an NRR higher than 100%. As Millie mentioned earlier, this is especially difficult before reaching product-market fit, which is crucial because customers won’t spend more if they don’t see the value.

Sofia: Absolutely, our data shows that reaching 100% NRR has become harder, even for top quartile companies. It was more achievable around 2022, but the landscape has shifted. Philip, we have a question for you: could you elaborate on the term used to define the KPIs that indicate customer value?

Philip: Ah, you’re referring to health scores. In customer success terminology, health scores represent various health indicators for a customer. When we talk about retention, the customers most likely to spend more are those who are deemed “extremely healthy.” Health scores can include metrics like how long it’s been since you last spoke with a customer or the value they derive from your product.

For instance, if you’re using ChartMogul, you need to connect it to your financial data to make that information actionable. Another health indicator can come from running NPS surveys. Regardless of how you phrase the questions—like asking about the likelihood of recommending your product or inquiring about their onboarding experience—low scores indicate potential issues.

These health scores are critical KPIs in customer success.

Sofia: Millie, Philip already mentioned that NRR is likely the number one KPI. I know you start tracking NRR more closely after reaching an ARR of about one to five million. Do you also consider expansion early on when building your product? What advice would you give to founders thinking about expansion, especially in a challenging customer acquisition environment?

Millie: It is hard! While I think about NRR loosely at an early stage, I personally don’t track the data closely. I probably could and should. Having a tool like ChartMogul makes it easier to track. In my recent projects, which have fewer high-touch users paying more, I gather feedback more informally. I keep every piece of feedback, whether it comes from calls, emails, or surveys, in a spreadsheet. I’ve started using AI for sentiment analysis on this data. For me, tracking this feedback gives a sense of where things stand, rather than relying solely on hard data. However, I recommend integrating data tracking as soon as you can manage it as a founder, ideally earlier than the one to five million ARR mark.

Sofia: Do you have any additional thoughts on this before I move on?

Philipp: No objections or additional thoughts; that sums it up well.

Sofia: I want to ask you this question, Philip, but Millie, feel free to jump in. It’s about pricing, which is a broad topic. I’ve seen that many companies are experimenting with new pricing models in response to economic pressures and increasing customer demands. Have you ever adjusted your pricing strategy, and did you see a positive impact on retention? Was this sustainable in the long run, or was it just a temporary boost? How can companies avoid unsustainable pricing changes?

Philip: For us, defining a pricing strategy has been about aligning it with the value we provide. The best pricing reflects the value offered. One of our key pricing factors is the size of the team using our tool. A larger team generates more value since we save significant time for each customer success manager. While we didn’t radically change our pricing model, we have raised prices over the years because the product has evolved significantly.

If you only want to measure health scores, there are cheaper products available, but they lack the comprehensive features we provide, such as automation, reporting, and lifecycle tracking. We also increased prices and added certain functionalities that add significant value, though they aren't necessary for every customer. For example, the customer portal we recently added serves as an interface between the customer success team and customers who need that feature. This is not for those who have a more tech-touch relationship with us, as they don’t require such a close connection.

These features are offered as separate modules, allowing us to provide a more affordable option for those who don't need them, while customers who do want these features pay the standard price. However, I wouldn’t classify this as a pricing strategy; rather, it's pretty much an industry standard to separate functionalities from the core product.

You raised a good point about competition. Unfortunately, most of us operate in competitive markets, which can drive improvement. If you find yourself in a highly competitive landscape with numerous similar pricing strategies, deviating significantly from the norm could risk your business. However, it could also be the breakthrough that sets you apart from the competition.

In the early days, experimenting with pricing was relatively easy. As your company matures, fundamental changes become riskier. We discussed what to do with existing customers—whether to keep them on the old pricing model or switch them to the new one. For some, a price decrease could be a celebration, while for others, it could be detrimental. This dilemma creates a situation where those benefiting from the new pricing may cancel their old plans and re-sign, while those with worse pricing remain on the old plan. This can dramatically reduce your NRR.

We haven't made any fundamental changes to our pricing strategy, and I advise careful consideration when contemplating such changes. The later you are in your company's lifecycle, and the more competitive your market is, the more the market dictates what pricing strategies are acceptable.

Sofia: I know we have follow-up questions on pricing because it’s a hot topic. There’s always the risk that changes might not go as planned, so we can address those offline or see if Philip can answer them later. We have only five minutes left, so I think we have time for two more questions. Have you both encountered any challenges while growing your subscriber base? When I looked at the data from ChartMogul, I found that as companies grow their subscriber base, it's common for their NRR to decline. Companies with a high subscriber count often have a low NRR, and some don't even come close to 100%, yet they manage to grow at a similar pace. Millie, could you start by sharing how you account for retention while trying to grow your subscriber base?

Millie: I’m not facing this challenge right now due to the early stage of my current project, but I can share how I overcame a similar issue in a previous company. We were growing rapidly and acquiring a considerable number of users each month, which was impressive by industry standards. However, we faced significant competition with more advanced technology. This retention challenge was clear: we were a service-based business struggling to compete against new SaaS companies that were digitizing our services.

Many in the company thought this would be the end for us, given our low tech capabilities. Interestingly, we realized that a significant percentage of our customers actually preferred a service-based approach rather than software. We discovered this by proactively engaging with customers when we noticed churn. Instead of just tweaking our business model, we went directly to our customers and asked for feedback.

This shocked many in the higher levels of the company, as they realized they should have consulted customers sooner. By focusing on the fact that we could address their problems with human interaction rather than software, we re-tailored our marketing and sales strategies. Our customer base appreciated this approach, proving that sometimes the solution isn't about creating shinier software but about better addressing the core problems we solve.

Philip: That’s an interesting insight. I wouldn’t have expected such a correlation between subscriber count and NRR. Typically, you’d think that a growing subscriber base would indicate higher NRR. However, it makes sense that as markets mature, new business becomes the primary growth driver rather than existing subscribers. It’s a fascinating finding, particularly for B2B SaaS, where 100% NRR is often the benchmark. I wonder if the same holds true for B2C SaaS. Achieving high NRR is certainly challenging, especially when considering subscriber growth.

Sofia: We're right on time, and this has been a wonderful discussion. Thank you so much for participating, and thanks to the audience as well. I'm on LinkedIn, as are Philip and Millie, so feel free to connect with us if you have any questions. That's it for today. Thank you, everyone!

Philip: Thanks so much!

Millie: Thanks, everyone!

All: Bye!