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What is a good NRR for SaaS?

6 min read

Have you ever wanted to see and understand how your business is growing? Or why are your customers canceling their service? In SaaS, Net revenue retention (NRR) is increasingly the most important metric a company should calculate to better understand their customer successes. Expanding service and reducing churn will help you put your business’s net revenue retention into perspective. Acquiring new customers is just one piece of the puzzle. Long-term client retention, as well as the potential to support further expansion revenue, are important to success as well. Not only that, but building up a strong NRR leads to an increase in profits.

Planhat can help you visualize your customer success metrics to ensure you make the most effective customer-focused decisions. But let’s begin with the basics. What is NRR in SaaS and how can you improve your NRR percentages?

What Does Net Revenue Retention Mean?

Net revenue retention in SaaS is a metric that analyzes the proportion of revenue maintained from current clients over a period of time. While NRR is the most commonly used term in the SaaS industry, you might also see it called Net Dollar Retention (NDR). NRR includes any expansion of revenue, as well as customer downgrades or canceling of service. NRR breaks down into four Monthly Recurring Revenue (MRR) metrics:

  1. Churn MRR: Customer leaves your service entirely

  2. Upgrade MRR: Customer upgrades their service plan to a higher-paying tier

  3. Downgrade MRR: Customer downgrades their service plan to a lower-paying tier

  4. Expansion MRR: Existing customer purchases a new product from your company

NRR assesses how successful your business is at both renewing and retaining existing clients, as well as producing extra money from those same consumers. Because NRR is about customer retention, metrics can visualize a positive or negative change within the revenue.

NRR is important as a key metric because it informs how your company is doing financially. Without understanding the amount of revenue you’re retaining, you can miss opportunities to allocate resources where they’re needed. Planhat helps you visualize your NRR all in one place, so you can determine the next steps you need to take to reach your goals. We’ll talk about how to calculate NRR in a moment, but first let’s discuss the ideal SaaS net retention benchmarks.

What Is a Good Net Revenue Retention Rate?

In SaaS, an overall net revenue retention rate goal should average between 90 - 130%. While this might sound ambitious, small, medium, and large businesses alike need a high retention rate to maintain their revenue stream. Of course, it’s easier for larger companies to gain a customer base and upsell products, so newer businesses should set their net revenue retention benchmarks goal realistically around 90 - 100% for healthy growth. When your upgrade and expansion MRRs generate more money than the revenue lost due to downgrades and churn, you’ll secure a higher NRR.

How Do You Calculate Net Revenue Retention in SaaS?

Breaking it down, NRR is calculated by using MRR metrics like upgrades and downgrades. Look at the formula below:

MRR at beginning of the month + (Upgrade + Existing customer expansion) - (Churn + Downgrade) / MRR at beginning of the month = Net Retention Rate

For example: Your business starts June with an MRR of $35,000 and exits June with an MRR of $38,000 (due to revenue as well as losses) from the same customers at the start of the month. At the end of June, you’ve made $7,000 in revenue. However, due to a $4,000 loss from churn and downgrades total revenue equals $3,000. Let’s break it down: $35,000 MRR + 7,000 revenue - $4,000 loss = $38,000 end of the month MRR . In this case, your net revenue retention for June is 108.5% ($38,000 ÷ $35,000).

You can make sure your NRR always meets the goal rate you’ve set once you understand your current standing. This formula will help guide you to better allocation of resources to the right departments and campaigns.

How to Improve Net Revenue Retention?

Ultimately, improving your NRR lies with developing expansion and reducing churn. By boosting your customer base by upselling and adding on features at a higher rate than downgrades and cancellations, you’ll see a positive NRR.

Expansion

By building up your promotional expansion efforts, you can convince current customers that they should upgrade their service to meet their needs. To increase expansion, you can:

  • Use pop-ups (modals) to notify users of upgrade features that could benefit them, like when a customer uses their one free content credit that needs an upgrade for access to multiple credits.

  • Allocate resources to products or services that bring in the most revenue.

  • Use contextual in-app messaging to upsell users on features they lack, like “upgrade to see more messages” in an app that only allows you to read the last 500 messages.

  • Offer customer discounts to use your service, like a 15% off coupon for the first three months of upgraded service.

  • Use prompt upgrades to remind users of the features they’re missing out on which give them extra value, like a 7-day free trial giving access to all features on the platform.

Using Planhat as a tool to track and manage your expansion, you can:

  • Benchmark customer usage of your products.

  • Visualize how engagement of your product varies and be informed if it does.

  • Share with customers so they understand the value they’re receiving.

  • Use a CRM pipeline tool for your Account Executives to focus on selling.

Reducing Churn

Reducing churn is all about understanding users and why they are leaving your service. What can you do to encourage them to stay? What adjustments to your product would you need to make? Having that data will allow you to implement changes in the future to retain customers.

  • Use an in-app self-service help to guide users to answers to their questions, like a “Need help?” button on the bottom of the screen.

  • Have a good Customer Success team that listens to your users and communicates any issues with the team.

  • Use Net Promoter Score (NPS) to understand customer loyalty, like how likely they are to recommend your product to another potential user.

  • Consider a holistic view of your organization's structure and allocate tasks to teams and officers that make sense.

  • Use churn surveys at the end of their cancellation process to understand why they are leaving, like a “Sorry to see you go. Tell us why.” screen.

  • Ensure you have the right customers for your product or service. The more customers you have that don’t fit the ideal customer, the more likely they are to cancel their service.

Planhat Visualizes Your Success

At Planhat, we help you power your version of success. The way you grow and collaborate with your customers is essential to your NRR growth. We help you visualize and compile your data, implement automation and integrations, and increase workflow, all with added security. Don’t compromise your business, but using Planhat, you can increase customer relationships and team collaboration. Try a demo today by visiting our website!

G2 Fall Report: Planhat helps grow your revenue

In G2 Fall Report 2022 Planhat has been named a leader in six categories: Customer Data Platform, Client Onboarding Software, Customer Success Software, Client Portal, Customer Revenue Optimization, and Subscription Revenue Management.

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