The benefits of measuring and increasing Net Revenue Retention (NRR).
It is a fair question. Why focus on yet another metric like Net Revenue Retention when you have so many KPIs to focus on? Well, the answer is simple. Your SaaS business is not like the other businesses in the world. That means your business runs specifically on recurring revenue. You do not sell a one-time purchased product. The customer needs to pay you on a periodical basis to keep availing of your products and services. That means you have to focus more on retaining customers.
1. Upgrade: These existing customers upgrade the product or services and start paying you more than before.
2. Downgrade: These customers downgrade their subscription plan and pay you less than before.
3. Constant: These customers pay you the exact amount they were paying before.
You can see that upgrading customers is profitable for your business, while downgrading is a threat. That means you not only have to retain customers but also retain the revenue they pay you. This is where NRR comes into the picture. Net Revenue Retention tells you how much income from your existing customers has changed over a period. You can see if your current customers are profitable or not.
If your NRR is more than 90% then you are doing good. However, if it is less than 90% it means you need to make improvements in your products and services. Thus, companies have started focusing on NRR, so should you.
A. Higher The NRR Higher The Revenue In Long-Term
If your NRR is high, it indicates that you are earning an adequate amount of revenue from your existing customers. If your company can retain their business now, it is highly probable that they will keep paying you in the future too. If you maintain a high NRR, it means you have succeeded in creating a loyal customer base which will help your company grow in the long run.
B. Indicated The Stability Of The Company
NRR helps you to estimate the stability of the company. Lower NRR indicates that your business is not able to expand with the existing customers. Whereas higher NRR means your company can grow with current customers. Even if your company does not want to invest a lot in acquiring new customers, it can still succeed as long as you can retain the revenue from these consumers. The higher the NRR, the more consistent growth for the company.
C. Net Revenue Retention Helps Reduce Churn
When you are aware of the NRR, only then can you work on reducing customer churn. For businesses with complex or custom pricing, using Customer Retention Rate as a metric to estimate the revenue you generate from the existing customers will be more difficult.
More churn = less revenue. NRR can help you understand churn, which helps you make business decisions to reduce those who churn. NRR has become an important KPI over the last decade as SaaS companies have started forecasting their progress based on NRR. Predicting retention within current and new customers and creating the best practices comes down to understanding the complex data from every customer. The best companies, which are growing, are the ones with customers who find value from businesses, are loyal and share this enthusiasm with their peers. If you are looking to improve your NRR and grow your SaaS business through customer retention, check out Adaptive Pulse!
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