For a while now, I have been trying to find the best way to gauge the performance of my CSMs (Customer Success Managers). It started off with NRR (Net Revenue Retention) being the north star through which I could see how my team is performing.

Followed up by, emails sent, meetings done, calls answered, tickets resolved, so and so forth, the list is almost never ending.

If there is a metric out there that I felt like that could show me how my team is performing, I would go ahead and apply it. The problem is, when you keep moving the goal post, it not only affects your team negatively, but also renders a lot of the historical data useless.

So you were tracking how many meetings a rep did but now that is not an indicator of performance? What changed?

So you were looking at NRR as being the north star metric but now its not? Ok, why?

See the underlining issue that I believe most VPs of Success face or companies for that matter is that they don’t exactly know what their success team’s function truly is.

Are they are retention based team, where the goal is just to retain the revenue and customers, where good quality service trumps everything?

Or is your team a growth team? Where the CSMs not only act as account managers but also making sure that the customer is constantly spending more and more money through growth initiatives?

Don’t have the answer? No biggie. You are not the first and won’t be the last.

Most companies, however try to kill two birds with one stone. Meaning, they use their customer success teams as both growth and retention teams simultaneously. And we did the same exact thing to be fair, most do. It’s not because of the lack of knowledge but resources. When you are a small company, you are not going to make specialized roles, you make do with what you got.

When you start your team out, you are hustling to go in every direction. Trying to make sure that anything, everything sticks against the wall. That requires a lot of trial and error. Repetition, repetition, repetition, coaxed with trying out new things and making sure that the customers are happy and taken care of. It’s not a lack of strategy, it’s a lack of headspace to do something different that will impact future results.

I’m guilty of this myself. It’s only, very recently, where I have started to wonder what the true identity of the team really is. Three years later, ha. So the question remains;

Are we a growth team or a retention team?

Well, it turns out, we are a retention team. No worries, your team could be totally different, it all depends on the goals you have and what you are looking to achieve with the current team, strategy, where you company is, etc. Just remember no two use cases are the same, there are a lot of moving parts when it comes to this.

For us since we are a retention team, didn’t really make a sense as to why we should be looking at the NRR as the main metric of performance, since it’s the exact opposite of what a retention team should be focused on.

Instead, enter GRR. We started paying more attention to the Gross Revenue Retention. With the intro and background out of the way, let’s talk about why NRR and GRR are two different metrics that tell two very different stories, why they matter, and of course how they differ.

And which one you should go ahead with as a north star metric based on the goals you have set for your team.

Understanding GRR vs NRR: A Deep Dive

In the world of SaaS, understanding and optimizing revenue metrics is critical for every business success. Among these metrics, Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) are perhaps the two of the most important metrics that any team will track and look at, day in day out.

The advantage of these metrics is that they provide valuable insights into customer behavior, revenue health, and growth potential.

What is Gross Revenue Retention (GRR)?

Gross Revenue Retention (GRR) measures the amount of revenue retained from existing customers over a specific period, excluding any upsells, cross-sells, or new customers. It focuses solely on how well a company retains its current revenue base, taking into account downgrades and cancellations.

Essentially the goal is to see how long the revenue that you have coming in from current customers will last if you were to add no new revenue at the top of the funnel. Yes, a simplistic view but it does give you an idea of where the bleed is.

How to Calculate GRR

The formula for GRR is:
Revenue at Start of Period – Downgrades and Cancellations divided by Revenue at the Start of Period (typically month) times 100

Why GRR Matters

• Retention Health: GRR indicates how well your company is maintaining its revenue from existing customers without relying on additional sales efforts.

• Customer Satisfaction: A high GRR mostly suggests that customers are satisfied and continue to find value in the product.

• Predictability: GRR helps in predicting future revenue streams more accurately.

• Competitive Edge: High GRR provides a competitive advantage, as it indicates strong customer relationships and loyalty. This can be a differentiator in markets where competitors struggle with high churn rates.

• Attracting Investment: Doesn’t get talked about often but Investors look favorably upon high GRR as it signals a stable and potentially scalable business. It demonstrates that the company can retain its revenue base, which is crucial for long-term profitability.

• Building Block for NRR: And last but not least and connected to the next point that we will be discussing, High GRR provides a solid foundation for achieving high Net Revenue Retention (NRR). With a stable revenue base, upselling and cross-selling efforts are more likely to be successful.

Bottomline, GRR is critical to see how well your team is retaining the current revenue. So if you are team that is focused more on retention, GRR is where I would look towards. But, if your focus is more growth, well, in that case let’s dig into NRR.

GRR in numbers

Excellent GRR (above 90%):

A GRR above 90% is generally considered very strong. It indicates that the business retains most of its revenue from existing customers, reflecting high customer satisfaction, low churn rates, and a stable customer base.

Good GRR (80% – 90%):

A GRR within this range is still good, indicating that the company retains a significant portion of its revenue from existing customers. There may be some room for improvement in customer retention strategies, but overall the business is in a healthy state.

Fair GRR (70% – 80%):

This range suggests that while the company retains a decent portion of its revenue, there are notable losses that need addressing. It may indicate areas where customer satisfaction can be improved or where churn prevention strategies need to be strengthened.

Poor GRR (below 70%):

Below 70% is generally a cause for concern. It indicates high churn rates and significant revenue loss from existing customers. At this stage you should prioritize investigating the causes of churn and take immediate actions to improve customer retention.

What is Net Revenue Retention (NRR)?

Net Revenue Retention (NRR), on the other hand, measures the total revenue retained from existing customers, including the effects of upsells, cross-sells, downgrades, and cancellations. It provides a comprehensive view of how customer relationships impact revenue growth.

So not only we have the downgrades (retention) factored in, but also expansion MRR (growth), the issue is that say for instance you had a bad contraction month and a very good expansion month. The good will overcome the bad, because the expansion revenue was a lot higher than the contraction and churn. Which can and does often mask the real issues in the funnel.

How to Calculate NRR

The formula for NRR is:
Revenue at Start of Period+ Upsells and Cross-sells – Downgrades and Cancellations divided by Revenue at Start of Period times 100

Why NRR Matters

• Growth Indicator: NRR shows whether your company is growing its revenue from existing customers, which is often more cost-effective than acquiring new ones. So it’s more of a holistic view.

• Customer Success: High NRR indicates successful customer engagement and effective customer success strategies.

• Revenue Optimization: NRR highlights opportunities for upselling and cross-selling, essential for maximizing customer lifetime value.

• Higher Valuation: Companies with high NRR are typically valued higher, as they demonstrate strong customer relationships and sustainable growth.

• Identifying Growth Opportunities: NRR helps identify which segments or products are driving growth, allowing you to focus on areas with the highest potential for expansion.

• Foundation for Scaling: High NRR provides a stable foundation for scaling your business. It ensures that as you grow, your existing customers contribute significantly to revenue, reducing the pressure to continuously acquire new customers. So even if there is a downturn and you are not adding a ton of revenue at the top, your BOFU metrics will not be affected as much.

So what should be done? Skip GRR and/or NRR?

Well, the answer is that for a comprehensive understanding your company’s revenue dynamics, it’s best to monitor both GRR and NRR together. Here is how you can use them together.

1. Baseline Stability (GRR): Start by assessing your GRR to ensure that your core revenue base is stable and customers are not churning significantly. This is critical before you move on to NRR. You cannot focus on growth, if you have a “leaky bucket”.

2. Growth Potential (NRR): Next, look at your NRR to evaluate how effectively you are growing revenue from your existing customer base through upsells and cross-sells.

3. Strategic Insights: Use the insights from both metrics to inform your customer retention and expansion strategies. For example, if your GRR is high but NRR is low, you may need to focus more on upselling and cross-selling initiatives. That might require AEs or a different hiring strategy (more on that in the next blogpost).

4. Benchmarking: Compare your GRR and NRR against industry benchmarks to see how you stack up against competitors and identify areas for improvement. But most importantly constantly tweak things and improve.

Both Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) are vital metrics for a SaaS business, offering insights into customer retention and revenue growth. By understanding and leveraging these metrics, you can enhance customer satisfaction, predict future revenues more accurately, and identify opportunities for growth.

Incorporate regular analysis of GRR and NRR into your business reviews to ensure you are not only retaining your existing customers but also maximizing their value over time. Remember, a high NRR, fueled by a solid GRR, is a strong indicator of a healthy, growing business.

Only by perfecting these metrics and goals around it can you navigate the complex maze of revenue retention and optimization. Ensuring sustained success in an ever before competitive market.