Net recurring revenue retention (NRR) — or the revenue your customer base brings in — speaks volumes about your business’s well-being and growth potential.
However, developing a high NRR rate isn’t possible without reducing churn and understanding your customers at a deeper level.
The good news: you have the data you need to grow your profitability with your current customers — you just aren’t tapping into it.
Want to learn exactly how you can grow your NRR rate?
Corinna Owens, Chief Evangelist Officer, purple cork, offers these actionable steps to improve your customer experience while increasing your annual recurring revenue.
What is net revenue retention?
Net revenue retention (also known as net dollar retention or NDR) measures the recurring revenue you drive from your existing customer base over a given period.
It considers your customers’ upgrades, downgrades, and cancellations to show how valuable your existing customers are to your business.
Keep in mind though, NRR isn’t the same as gross revenue retention (GRR), which doesn’t account for KPIs such as the customers’ upgrades and downgrades.
Similarly, NRR differs from customer churn rate as well. “Churn typically means a customer is gone, bye-bye for good,” shares Corrina. Whereas, NRR considers customers who downgrade, but aren’t lost altogether.
Why is net revenue retention important in B2B sales?
For SaaS companies, tracking NRR is vital for getting an overview of their business’s health and customer loyalty.
Because NRR is calculated using multiple SaaS metrics like expansion revenue, churn, and retention, it gives a more in-depth picture of your company’s performance than other metrics like churn rate and GRR can.
NRR is also a key metric for determining your growth potential. Plus, it tells you how effective your churn prevention and upsell and cross-sell strategies are.
Lastly, NRR is an important metric for measuring the quality of the deals your sales team is closing. Because if your customers are churning fast, it could be because your reps aren’t bringing in users who are well-aligned with your ideal customer profile — indicating you have a pipeline generation problem.
How to calculate net revenue retention
Use this formula to calculate your net revenue retention rate over a period of time:
In this formula:
- Starting monthly recurring revenue (MRR) is the total revenue from the previous month
- Contraction MRR is the recurring revenue lost to downgrades
- Expansion MRR is the recurring revenue added from upgrades
- Churn MRR is the lost revenue (due to cancellations)
For example, if you’re starting MRR is $2,500 and you lose $700 to downgrades and $250 in churn but add $1,000 in expansion MRR, your NRR will be:
NRR = 2500 – 700 – 250 + 1,000/2500 x 100% = 102%.
8 ways to increase net revenue retention
Improving your NRR depends on two key factors:
- Centralizing and regularly reviewing first-party data
- Building relationships with your customers
The aim? To boost customer experience with your SaaS product and team. But that’s easier said than done. Use these practical tips to start building out a strategy for increasing your NRR rate.
1. Create an accessible dashboard for tracking net recurring revenue
“Before you launch any tactic or program that’s going to help solve that [NRR] metric, make sure that your DevOps has something in place [say a Tableau or Salesforce dashboard], to track it against an Excel spreadsheet,” Corrina explains.
Not only does making your NRR rate visible assist in measuring your campaigns’ performance, but it also aligns your teams — confirming the NRR metric is your organization’s north star. The result? Everyone across the organization rows in the same direction.
An easy-to-read NRR dashboard is also a great source for detecting red flags such as mass cancellations early on. This allows you to find solutions to problems well in advance — before they get out of control.
2. Steward your account data to better understand your customers
Next, centralize and regularly review your data to better understand your customers and product usage.
“SaaS companies underutilize their first-party intent data,” notes Corrina. This includes product data and website and marketing analytics that tell you:
- How your customers are using your tool. As in, which features do they use the most? Which ones do they struggle with?
- Which content your target audience and customers are consuming — for example, the emails they’re opening and links they’re clicking.
- What customers are doing on your website, such as the pages they’re visiting and how long they’re staying on each one.
Use this data to refine your product and understand customers’ buying intent.
For example, let’s say tracking your data tells you a champion user at an account has left to take on a new role at a different organization and is now visiting your pricing page. In such a case, the data indicates their interest in buying from you again. Your job? To reach out to them immediately.
Corrina recommends using UserGems’ champion tracking for this. Cobalt used this playbook too — driving $1.7M in new business pipeline. In fact, 8% of Cobalt’s new logo revenue growth in 2022 came from UserGems-sourced pipeline.
3. Host deal review office hours
Another effective way to use your first-party data and to reduce churn is to find out which deals are at risk.
Once you’ve identified accounts that are at risk of churn, host a cross-team meeting for creating a strategy to save the deal.
Corrina calls these meetings “deal review office hours” and shares:
“These are designed to tackle an account that needs ‘all hands on deck.’ Peers across different teams (enablement, sales, solution engineers, legal, product marketing, account-based marketing, customer success, and executive sponsors) [work together to think] of any angle we may not have approached yet to ‘save the deal.’"
“Not only does this hive mind produce ideas for other account deal teams, the specific seller now has a Swiss army knife of support with action items they can immediately take. The innovation and inspiration from these meetings is worth every minute.”
4. Invest in solving more of your customers’ problems
Educating customers about your product’s various use cases is particularly helpful for SaaS companies that start off as a one-trick pony but add multiple features over time.
Instead of mass educating customers about the ways they could use your tool though, get specific about the exact features that’ll help them from an individual standpoint.
To do so, build relationships with champions at paying accounts.
Have one-on-one conversations with them to understand how they’re using your tool and what their goals and struggles are. From there, explain more ways they can use your tool to hit their targets.
Taking such a customer-first approach boosts their experience with you — showing them that you’re invested in their success. It also gives you an opportunity to effectively upsell and cross-sell to your current customers.
5. Use referrals as a spark to strengthen customer relationships
It’s also important you build relationships with your customers in more ways than educating them about your product.
For instance, connect with them on social media to have conversations, use referrals as gifts to strengthen your relationships, and so on.
The aim is simple: “Just try and get to know them,” advises Corrina.
For example, if your audience is predominantly in marketing and sales and they’re active on LinkedIn, start following them there.
6. Evangelize new champions inside old accounts
When a new employee fills a past champion’s role, they likely don’t have as much grip on your tool as the ex-user did. This leads to reduced product use, increasing the risk of churn over time.
Your best bet? Prevent the account from reaching a point where they unsubscribe by educating these new users.
Creating more champions at an account lets you “[…] create stickiness [and helps you] become a product inside an organization that most users are aware of, leading to new opportunities and repeat customers.”
Ultimately, the approach increases retention metrics including your customer lifetime value (LTV).
7. Don’t rely on one champion in a target account
Whether it’s a champion at a paying account or an interested prospect at a target account, make sure you multi-thread.
That is: build relationships with multiple users and interested folks at an account to keep the deal alive and well in case your point of contact leaves.
Corrina agrees, “You cannot depend on one sole champion, or one sole person internally because they could leave.”
Plus, by training new users at old accounts, you can grow more champions at an account, effectively boosting your NRR rate.
8. Build an active community to connect customers and prospects
If you have the resources, Corrina suggests investing them into community building.
Besides helping you build stronger relationships with your customers and target buyers, community building lets you:
- Humanize your brand as community members engage with folks from your organization
- Provide more value to your existing customer base as they connect with more people in their space
- Leverage voice of customer marketing to bring in new customers as paying customers explain to potential buyers how your tool helps them
For the last two, Corrina recommends:
“Creating an environment that facilitates a connection between a peer at another organization can double or triple your resources. Your champions that are staunch users of your platform can connect with your customers who aren't utilizing it to its fullest.
“This can happen by way of:
- Matching programs (match peers to their peers where they can connect on a call and chat without having to reach out to their sales rep for permission)
- Creating mini-roundtable events that facilitate a conversation around the topics you know matter most to them (you wouldn't believe how many times I've heard ‘I had no idea your product had that feature’ come out of those events!)”
Taking such a proactive approach to community building makes it useful both as a user retention and customer acquisition channel.
Reduce pipeline anxiety and churn with net revenue retention
In short, grow your net recurring revenue by:
- Making your NRR rate visible
- Creating more champions at paying accounts
- Educating users about more product use cases specific to their goals
- Studying data to understand customer behavior and detect at-risk deals
Most of all, leverage UserGems’ to keep tabs on champions moving in and out of your customer accounts. This is useful for training new users at old accounts — reducing churn in the long haul.
What’s more, reach out to those alumni customers as they join new organizations. This gives your sales team warm leads to target who are likely to convert since they already know (and hopefully love) your product.
In fact, deals with these alumni customers can more than double your win rates — and even grow deal sizes by up to 54%.
Hard to believe? Schedule a free demo with UserGems today to learn how the tool can help you.