Net Revenue Retention (NRR) and Gross Revenue Retention (GRR) are two important metrics used to measure the revenue growth of a business. NRR measures the percentage of revenue retained from existing customers, while GRR measures the percentage of revenue retained from all customers, including new ones. In this blog, we will take a closer look at NRR vs GRR and provide relevant data to help businesses understand the importance of each metric.
Net Revenue Retention (NRR)
Net Revenue Retention (NRR) measures the percentage of revenue retained from existing customers. It takes into account the revenue lost from customers who churned, and the revenue gained from existing customers who upgraded their plans or purchased additional products. A high NRR indicates that a business is retaining its existing customer base and generating additional revenue from them over time.
NRR is an important metric for businesses with subscription-based revenue models, such as SaaS companies. According to a report by Pacific Crest Securities, the median NRR for public SaaS companies in 2019 was 107%. This means that these companies were able to retain more revenue from existing customers than they lost to churn and were able to generate additional revenue from their existing customer base.
We talk about NRR in depth in this blog.
Gross Revenue Retention (GRR)
Gross Revenue Retention (GRR) measures the percentage of revenue retained from all customers, including new ones. Unlike NRR, GRR does not take into account the revenue generated from upgrades or additional purchases made by existing customers. A high GRR indicates that a business is retaining a high percentage of its revenue from both existing and new customers.
NRR vs GRR: A comparative look
While both NRR and GRR are important metrics for measuring revenue growth, they provide different insights into a business’s revenue retention strategy. NRR provides a more granular view of revenue retention, focusing on the revenue generated from existing customers. GRR provides a broader view of revenue retention, focusing on the revenue generated from all customers, including new ones.
Businesses with subscription-based revenue models should focus on improving their NRR by reducing churn and increasing revenue from existing customers through upgrades and additional purchases. On the other hand, businesses with transaction-based revenue models should focus on improving their GRR by retaining customers and generating new business.
NRR and GRR are both important metrics for measuring revenue growth, and businesses should use them in tandem to gain a complete understanding of their revenue retention strategy. By analyzing NRR vs GRR, businesses can identify areas for improvement and implement strategies to retain existing customers and generate new business.
Calculating NRR
The formula to calculate NRR is:
NRR = (Current Period Revenue – Churned Revenue – Downgraded Revenue + Upsell Revenue + Cross-sell Revenue + Expansion Revenue) / Prior Period Revenue x 100
A good net retention rate for B2B SaaS companies can vary depending on a number of factors such as industry, company size, and pricing model. However, according to a study by OpenView Venture Partners, a net retention rate of 110% or higher is considered excellent, while a rate of 90-110% is considered good, and anything below 90% may indicate that there are issues with customer retention and/or expansion.
It’s worth noting that while NRR is an important metric for SaaS companies, it should not be the only metric used to evaluate the health of a business. Other metrics such as customer acquisition cost (CAC), customer lifetime value (CLTV), and churn rate should also be taken into account to gain a comprehensive understanding of a company’s growth and sustainability.
Both Net Retention Rate (NRR) and Gross Retention Rate (GRR) are important metrics for B2B SaaS companies, and each provides valuable insights into different aspects of a company’s growth and sustainability.
GRR measures the percentage of customers that a company is able to retain over a given period of time, without accounting for expansion revenue. This metric is useful for understanding the retention rate of a company’s customer base, and how successful they are in keeping customers onboard. A high GRR suggests that a company is providing value to its customers and keeping them engaged and satisfied with the product.
So, to answer the question, there is no one-size-fits-all answer to which metric is better for B2B SaaS companies. Both NRR and GRR provide important insights into a company’s growth and sustainability. However, NRR may be more relevant for companies with a strong focus on upselling and cross-selling, while GRR may be more relevant for companies that want to focus on improving customer retention and reducing churn. Ultimately, companies should use both metrics in combination with other key performance indicators (KPIs) to gain a comprehensive understanding of their business performance.
How NRR came to be and its importance
Net Retention Rate (NRR) is a relatively new metric that emerged in response to the changing business model of Software-as-a-Service (SaaS) companies. In the early days of SaaS, companies typically used traditional metrics such as customer acquisition cost (CAC) and monthly recurring revenue (MRR) to measure their growth and success.
However, as SaaS companies began to shift their focus towards customer retention and expansion, they realized that these traditional metrics didn’t fully capture the true health of their business. For example, a company could have a high MRR but still be losing revenue due to churned customers.
To address this issue, SaaS companies began to develop new metrics that focused specifically on customer retention and expansion. NRR was one of the metrics that emerged from this trend, and it was developed to provide a more comprehensive view of a company’s revenue growth over time.
Today, NRR has become a standard metric used by many SaaS companies to evaluate the health of their business and track their progress over time.
How did GRR came to be
Gross Retention Rate (GRR) is a metric that has been used in the SaaS industry for many years and has evolved as a way to measure customer retention. It emerged in response to the need for SaaS companies to measure customer churn, which is the rate at which customers stop using their product.
In the early days of SaaS, churn was a major problem for many companies. To address this, companies began to develop strategies to reduce churn and increase customer retention. However, in order to measure the effectiveness of these strategies, they needed a way to track customer retention over time.
GRR was developed as a way to measure the percentage of customers that a company is able to retain over a given period of time. It is calculated by dividing the number of customers at the end of a period by the number of customers at the beginning of the period, and is expressed as a percentage.
GRR provides a simple but effective way for SaaS companies to track customer retention over time, and to compare their retention rate to industry benchmarks. By measuring GRR, companies can identify areas of their product or service that are causing customers to leave, and develop strategies to address these issues and improve customer retention.
Today, GRR is a widely used metric in the SaaS industry and is considered an important measure of customer retention. Companies use it to track their progress over time, identify areas for improvement, and compare their retention rate to industry benchmarks.
GRR Benchmarks for B2B SaaS
The ideal GRR for B2B SaaS companies can vary based on various factors such as industry, business model, and customer acquisition strategy. However, in general, a good GRR for B2B SaaS companies is considered to be above 100%. A GRR above 100% indicates that the company is generating more revenue from existing customers than it is losing from churned customers.
A GRR of 100% indicates that the company has retained all of its existing revenue but has not generated any additional revenue from expansion or upselling efforts. In contrast, a GRR below 100% indicates that the company is losing more revenue from churned customers than it is generating from existing customers.
In summary, while a GRR of above 100% is generally considered good for B2B SaaS companies, it’s important to keep in mind that the ideal GRR can vary depending on the specific circumstances of the business.
Conclusion
In conclusion, both Net Revenue Retention (NRR) and Gross Revenue Retention (GRR) are important metrics for B2B SaaS companies to measure and track their success in retaining existing customers and driving revenue growth.
NRR is a more nuanced metric that takes into account both customer churn and expansion revenue, providing a more comprehensive view of a company’s revenue retention. A high NRR indicates that a company is not only retaining its existing revenue but also generating additional revenue from existing customers through upselling, cross-selling, and other expansion efforts.
On the other hand, GRR measures the total revenue retained from existing customers without considering expansion revenue or other factors. While a GRR above 100% is generally considered good, it does not provide the same level of insight into a company’s expansion efforts as NRR.
In general, both metrics are useful for tracking a company’s revenue retention efforts, but NRR is a more comprehensive metric that provides a more accurate picture of a company’s growth potential. Ultimately, the choice between NRR and GRR depends on a company’s specific needs and goals, and both metrics should be considered when evaluating a company’s customer success efforts.
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