5 min read
How does your business measure its success? Do you base it on the number of new subscriptions customers purchase from you each year? Or perhaps you rely on your financial health as a good indicator. Many businesses look at their gross revenue retention (GRR) to measure their success. In this blog, we will explain how to calculate gross revenue retention and what a good GRR is. While this blog will focus on GRR, we will also define net revenue retention (NRR) and compare gross revenue retention vs. net revenue retention . Then, we will introduce you to a software that will help you manage and grow your customers (hint hint: it’s Planhat!). Let’s get started.
Gross revenue retention measures the amount of revenue your business keeps after subtracting the amount lost due to customer churn and downgrades. Customer churn is the number of customers who ended services with your business. Downgrades occur when customers pay less than they did the previous time frame. New customers and upgrades are not factored into finding your GRR.
Your GRR is a great way to measure how happy your current customers are. If you see your gross revenue retention rate drop, it means that your customers might be unhappy with your business. Planhat offers solutions. We equip your team, and especially your Customer Success team, with the tools they need to keep customers happy so they’ll continue doing business with you (but more on that later).
To calculate your GRR, you will first have to determine what time period you want to measure retention for. You can choose to measure monthly revenue retention (MRR), quarterly revenue retention (QRR), or annual revenue retention (ARR). A good rule of thumb is to calculate it based on how often subscription payments are due. From there, you can plug your numbers into this formula (we will use MRR in the formula, but you can use either of the other types of revenue retention that you’d prefer):
GRR = (MRR - MRR lost due to customer churn - MRR lost due to downgrades) / MRR at the beginning of the month
To calculate your gross revenue retention rate, multiply your GRR by 100. The highest your rate can be is 100%.
As an example, let’s say that:
MRR = $25,000
Customer Churn = $500
Downgrades = $600
Using these numbers, the equation would look like this:
GRR = (25,000-500-600) / 25,000
Your GRR would be 0.956. When you multiply it by 100, you would get a GRR rate of 95.6%.
What is considered a good revenue retention rate will vary depending on the size of your business. Here are the numbers you should strive for depending on your size:
Small/Mid-sized businesses (or selling to small- or medium-sized businesses): 80%
Enterprise businesses: 90%
Enterprise businesses with a high annual contract value (ACV): 95%
While a drop in your GRR rate may indicate that you have a problem on your hands, that is not always the case. Your rate may also change solely due to a lull in business.
When comparing gross revenue retention vs net revenue retention, it comes down to what is factored in when measuring each. Whereas GRR is better at measuring customer retention, net revenue retention (NRR) is better at measuring the financial health of your business. Unlike GRR, NRR factors in customer upgrades or any other new business from existing customers, too. By doing so, NRR can show you how important giving your customers more value is.
To calculate NRR, you use this equation:
NRR = (Beginning ARR or MRR + Upsells - Downgrades - Churn) / (Beginning ARR or MRR)
You find your NRR ratio by multiplying your NRR by 100. Unlike GRR, your NRR can be more than 100%. For SaaS businesses, target NRR ratios are:
Small or mid-sized businesses: 90-100%
Enterprise businesses: more than 100%
If you would rather focus on bringing your customers value instead of merely keeping them happy (an active approach rather than a more passive one), then you should consider measuring success based on your net revenue retention instead of or in addition to your gross revenue retention. How do you make sure to bring your customers value? Using Planhat. You can learn more about integrating Planhat with Hubspot to improve your NRR here.
Planhat is your solution to better manage and grow your customers. We have the badges to back it up (15 in the category of Customer Success Software, in fact). How does it do that? By bringing all your customer data to one platform for better tracking. From there, you can set up automation so that you know when to reconnect with your customers, follow customers along their journey with a data-driven workflow, and create presentations based on the data you collect.
We at Planhat believe that your Customer Success team is just as important to driving sales as your Sales team. Our platform helps them do that by allowing them to better connect with customers. That’s not to say that our platform is only for your Customer Success team, though. We created our platform with the belief that you grow your NRR through departmental collaboration. It takes an entire business to not only keep customers satisfied, but also to increase your number of customers.
Are you ready to find out what Planhat can do for your business? Schedule a demo with us today.
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