An introduction to Net Revenue Retention

NRR your #1 Customer Success KPI

Net revenue retention (NRR) measures your organization's ability to retain and expand customers and is considered the most critical measurement of success for your business's post-sales activities. NRR is calculated as the total revenue (including expansion revenue) minus revenue churn (contract expirations, cancellations, or downgrades) over a period of time (usually a month or year).

*Please note NRR is the same as net dollar retention but is NOT the same as Gross Revenue Retention (GRR) which does NOT include expansion and focuses strictly on churn performance.

Your NRR calculation will look like this:

Depending on the maturity and structure of your business, you may find that NRR is owned by your executive Revenue or Customer leader. It's not uncommon for Customer Success Managers to have accountability to churn (GRR) while an Account Management team focuses on expansions and upsells. Regardless of how you choose to operate, know all efforts and metrics must flow seamlessly into your NRR calculation and it should be included in your Customer Success KPIs once it makes sense to roll it out to the organization.

The best time to start measuring NRR is once you've found product market fit and renewal windows start opening for your first significant set of customers. Any earlier and it will do you a greater disservice and possibly serve as a distraction as you're still in the stage of finding your business's footing in the market. Getting ahead of it and building out your infrastructure to support measuring NRR is always a good thing, but early on your first priority needs to be go-to-market sales and new customer onboarding and support experience.

As your business matures you'll want to expand your data rigor and review surrounding your NRR performance. Slicing by customer use case, market, product, and tenure are foundational ways to inform you on how you're progressing and where pain points may exist that need addressing. The general rule of thumb is 100% or greater NRR is your goal as it shows your business is growing in overall revenue.

More than any other metric NRR is the benchmark of success your organization should look for information on how your growth is trending. If you find yourself struggling to grasp this concept or maximize your potential in this area then give me a ring and I'd be happy to help.

Cheers,

Adam