6 min read
Customer retention is a major focus for businesses across almost every industry. After all, there is a limit to the number of new customers that you can acquire, since, you know…the population of the Earth isn’t infinite. It’s just common sense that you should try to keep the customers that you’ve already attracted. In this brief guide, we’re taking a look at how you can better understand your customer retention rates by using metrics like net revenue retention (NRR). Let’s jump in!
In order to understand how many customers you’re keeping, you will need to use retention metrics. In order to collect and analyze this data, most companies use software that will do the heavy lifting. When choosing a platform to help you do this work, it’s important to look for:
Ease of Use: First and foremost, any tool that you select should be intuitive and simple to use. After all, your customer success team is busy, and no one wants to take the time to learn yet another complicated program. They need to be able to easily access the data so they can actually use it!
Workflow and Customer Journey Tools: You need to be able to build workflows and customer journeys to be able to understand where customers are being lost, where there is opportunity to upsell and cross-sell, and to focus your efforts on the activities that actually work.
Flexibility: Any tool that you select needs to be able to adapt to your specific business needs. You need to look for the ability to customize your platform to suit you and your team.
Automations and Integrations: The best thing about technology is how much time it can save you! Make sure the platform you’re considering includes automation of tasks that don’t need to be done manually and integration capabilities with your existing tech stack.
Reporting and Presentation Abilities: What’s the use of having data if you can’t report or present it? It’s important to consider these functions when looking at a solution.
Collaborative environment: A shared working space that encourages transparent collaboration between you and your customers is becoming increasingly important as customers expect excellent service from their software solutions.
Security: Customer data is sensitive and important data. Your platform needs to have security externally and internally. Look for the ability to assign roles, limit access, and of course, a platform with strong external protection.
Not sure if there’s a platform that can do all of this? There is! And (spoiler alert) it’s Planhat! We’ll get to that in a moment. First let’s take a look at what you’ll actually be measuring with our innovative technology.
When looking at what metrics measure retention, you’ll find that these five metrics are the most common ones. They are:
Net Revenue Retention (NRR): This metric looks at your total revenue minus any downgrades, cancellations, and churn. It’s important to note that total revenue includes any upgrades or upsells.
Annual Revenue Retention (ARR): This is essentially the same as NRR, but looking at it over each year rather than monthly or quarterly.
Churn Rate: This is the measurement of how many customers stop doing business with you over a given period of time.
Gross Revenue Retention (GRR): While similar to NRR, GRR is the measurement of revenue minus downgrades, cancellations, and churn. The revenue in GRR does not include upgrades or upsells.
Net Expansion Rate : This metric only looks at the sum of the revenue from add-ons, upgrades, upselling, and cross-selling.
These are just a few of the metrics you can use to understand your customer retention.
Here at Planhat, we’ve found that one of the best retention metrics is net revenue retention. NRR is particularly useful for customer success teams because it helps them target the accounts that are most likely to increase in value over time. Once those accounts are identified, you can easily engage and upsell, putting your customer success team into more of a sales position rather than existing to simply assist customers.
Viewing customer success as a part of sales is something we really believe in at Planhat. Instead of taking a defensive approach to customer success (waiting for them to come to you with issues), we think that a proactive tactic of bringing opportunities to your best customers is the best strategy. Using the NRR metric is essential in helping you identify those customers and implement this technique.
When looking at customer retention examples, you’ll notice that NRR is different from industry to industry. One common industry that uses NRR is the software as a service sector (SaaS).
For SaaS companies, any NRR higher than 100% is likely to be considered good. SaaS is different from many industries because of the unique ability to upsell and cross-sell. For smaller SaaS companies, an NRR between 90-100% may be deemed good, while larger ones may not be satisfied with those numbers. Some specific niches of the SaaS industry tend to have lower NRRs as well, due to having a different user base. While there are cases where you shouldn’t be discouraged by a lower NRR, it’s still best to try to boost your NRR as much as possible. In fact, McKinsey & Company found SaaS companies that hit a net revenue retention rate of 120% had a much higher growth rate than other companies.
As you can see from this discussion, there really isn’t a cut and dry answer to what a good NRR is for your specific SaaS company. In order to determine what is best for you, you’ll have to track and analyze your own individual NRR to reap the benefits of using this metric.
We know how important customer retention is to the success of your business because it’s important to our business too! In fact, we keep our customers happy by giving them a platform that does everything they need when it comes to retention metrics. We’ve loaded our solution with easy-to-use tools! To name just a few, you’ll find things like:
The ability to build and run incredible customer journeys
No-code connections and app building
Out-of-the-box automations to help you know when to contact customers at critical moments
Beautiful presentation options to help you tell your customer retention story to internal and external stakeholders
So much more than we can name in a short blog!
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