Top Tier SaaS businesses are successful not at just winning new customers but also at retaining and upselling the existing client base. Revenue growth from current customers comes at a lower cost compared to new client revenue, demonstrates product stickiness and brings additional significant benefits; therefore, capturing and tracking retention should be top of mind for founders and management teams. The two most important metrics for measuring retention are Gross Revenue Retention (GRR) and Net Revenue Retention (NRR), which this article by Allied Advisers covers.
NRR in particular has a dramatic impact on Annual Recurring Revenue (ARR) because of the compounding effect of growth, and consequently on the valuation of the company. For instance, 20% higher NRR could result in over 2x higher valuation over a 4-year period! Allied Advisers’ report on Customer Retention Metrics covers these important topics for SaaS companies in their quest to achieve an optimal outcome.