4 min read
One metric stands out as businesses strive for sustainable growth through their existing customer base: Net Revenue Retention (NRR). In fact, according to Planhat’s Customer Success Community Survey, 72% of CS leaders recognize NRR as their top priority for 2023.
But amidst the challenges of an economic downturn, companies can’t afford to focus solely on NRR. There are too many pressing matters that demand attention. From the need to increase expansion sales when new business is scarce to hiring for critical roles like RevOps to ensure internal alignment and implementing automations to fuel growth while remaining customer-centric.
In this blog post, we will delve into the significance of NRR for customer success and explore why CS teams need to expand their focus beyond NRR to other essential metrics.
NRR measures a company’s ability to retain and grow revenue from existing customers. In today’s gloomy economic outlook, customers, companies, and even countries are preparing for the effects of an economic downturn. Businesses are now reviewing strategies and cutting headcount. NRR is, therefore, an essential metric within customer success as it shows a business can grow sustainably via its existing customers.
But what is a good NRR? When benchmarking your NRR use these metrics as rough guidance*: NRR 130%+ is great, NRR 120%+ is good, and NRR 110%+ is the median. Below that, you need to do better.
CS teams need to look beyond NRR and consider other insightful metrics such as gross retention, upsell, churn, retention, and profitability. These metrics offer both businesses and CS teams an even greater understanding of where they find themselves. In today’s business landscape, companies are aligning and defining metrics across all functions and putting in the time to understand them thoroughly.
For example, profitability is becoming increasingly important for enterprise valuations. Research from Software Equity Group shows that profitable public SaaS companies with a gross margin of 80% or higher see a median multiple of 52% more than the competition. Moreover, the appetite for risk in 2023 will be lower than it was in 2022, making profitability metrics just as important as NRR.
In Planhat’s Customer Success Community Survey 2023, we asked some of the leading thinkers in our industry about how they will take on this years CS challenges. This is what they had to say about NRR being considered a key metric:
“NRR is the most holistic internal metric of customer success because it encompasses everything that happens in the installed base, both growth and contraction. In 2023, due to the economic climate, growth from the install base will be a bigger portion of a company’s revenue, so there will be many eyeballs on it. But it will be important not to just look at NRR, but churn and growth separately, so you don’t lose perspective of what areas require improvement."
Daphne Costa Lopes
Head of Customer Success
“Given that we have all been told this upcoming year is set to be terrible, how could you not focus on NRR? After all, in order to bring in new business, you ́re going to have to do so much more of it - plus it will be more expensive - to get year-on-year growth. In 2023 you need to focus on efficiency. Besides NRR, you should track gross retention and upsell separately. Don’t just look at the combined figure because that can hide a lot of insights. And as a leader in any business, you should understand how much you and your team are costing the business to ensure you are being as effective as possible with your resources.”
Chief Customer Officer
The market is changing – with a recession on the horizon, and from a valuation perspective profitability is key. There is now an expectation for companies to prove they are profitable. And this is where NRR comes into play, as it shows growth being delivered sustainably from an existing customer base. Ultimately, what I see happening in 2023 is that NRR and profitability metrics will be used in tandem. From a CS perspective, this means segmenting a portfolio and reallocating resources to customers with the highest growth potential.
Vice President of Customer Success EMEA
Now is the time to get ahead, know which strategies to double down on, which technologies to invest in, and which roles to prioritize. Help your business to stay profitable and make the right decisions by downloading your copy of Planhat’s Customer Success Community Survey 2023 today.
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