Why Should Companies Focus On NRR?

The benefits of measuring and increasing Net Revenue Retention (NRR).

Why Should Companies Focus On NRR?
Adaptive Pulse

It is a fair question. Why focus on yet another metric like Net Revenue Retention, when you have so many KPIs to deal with? Well, it's simple. Your business is not like all the other businesses in the world. Your business is a SaaS company. This means your business specifically runs on recurring revenue. You don’t sell a one-time purchase product. The customer needs to pay you on a periodical basis to keep availing of your products and services. This means you have to focus more on retaining customers.

There are three types of existing 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 exactly the same they were paying before.

You can see that upgrade customer is profitable for your business while downgrade is a threat. This 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 the revenue your existing customers have been paying changed over a period of time. You can actually see if your existing customers are profitable or not.

If your NRR is more than 90% then you are doing good. However, if it is less than 90% this means you need to make improvements in your products and services. Thus, companies have started focusing on NRR and you should too.

More benefits of focusing on NRR as a SaaS Company

A. Higher The NRR Higher The Revenue In Long-Term

If your NRR is high, it indicated that you are earning an adequate amount of revenue from your existing customers. If your business is able to retain their revenue now, it is highly probable 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 is able to grow with current customers. If your company does not want to invest a lot in acquiring new customers, it can greatly 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

Only when you are aware of the NRR you can 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 in making 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 each and every customer. The best companies that are growing are the ones with customers who find value from businesses, are loyal and share this enthusiasm to 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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