In today’s competitive business environment, mastering revenue metrics is crucial to sustainable growth. The two key metrics are GRR, or gross revenue retention, and NRR, or net revenue retention.
I is not going to describe find out how to calculate them, because this information is widely available, benchmarks are also available and change periodically. Instead, I’ll focus on when to make use of them and under what conditions one could also be more essential than the other.
Each of them provides unique insight into the company’s revenue health and helps shape strategic decisions. Knowing when to focus on GRR and when to focus on NRR can significantly impact your business strategy and results.
When to focus on GRR
Maintaining key customers: GRR is essential to evaluate the retention of the core customer base, excluding the effects of upselling and cross-selling. This metric is particularly essential for early-stage firms or those transitioning to a subscription model because it measures existing customer loyalty and satisfaction, providing a clear picture of underlying customer retention rates.
Service stability rating: For basic or subscription-based services equivalent to media or basic membership, GRR is essential. It measures how many customers retain their core services, ensuring the stability of the core revenue stream and helping prevent customer churn.
Encouraging customer loyalty: By prioritizing GRR, firms can align their sales and customer success teams with the goal of retaining customers, fostering long-term relationships, and reducing customer churn. This focus helps build a loyal customer base that gives a stable foundation for long-term growth.
When to focus on NRR
Maximizing Revenue Growth: NRR is critical in driving overall revenue growth from your existing customer base. Includes expansion revenue from upsells, cross-sells and renewals, providing a comprehensive view of revenue health, especially essential for mature firms trying to maximize growth opportunities.
Promoting upselling and cross-selling: Companies trying to increase revenue from existing customers should prioritize NRR because it encourages sales teams to explore growth opportunities. This focus can drive revenue growth by increasing customer value and increasing average customer spending.
Balance Customer Acquisition and Retention: While acquiring latest customers is essential, NRR emphasizes the importance of maximizing revenue from existing customers. Tracking NRR provides a balanced approach between acquiring latest customers and expanding relationships with existing ones, optimizing overall revenue performance.
Incorporating each GRR and NRR into your business strategy, in addition to your sales and support KPIs, should provide a holistic view of revenue dynamics, ensuring a balanced approach to customer growth and retention.