What is gross revenue retention?
Gross revenue retention (GRR) is the percentage of monthly recurring revenue (not including expansion revenue) left over after customers leave or switch to cheaper goods. GRR only shows how well a business can keep its current users because it doesn’t look at upsells, cross-sells, or upgrades.
Each measure of GRR is tied to the same time frame as customer retention. But because it measures actual cash flow, it gives a more accurate (and more complicated) picture of how healthy your business is. The number of customers buying from you is called their customer retention rate. The gross revenue ratio (GRR) shows how much customer loyalty helps your business.
Let’s say that SaaS Company A has a 5% churn rate and SaaS Company B has a 10% churn rate.
- Most of Company A’s customers have stayed with the company, but it has lost a few business customers, making up almost 25% of its income.
- When Company B repositioned its product, it lost many freemium and lower-tier customers. But its big accounts have continued to use its service happily.
At first glance, Company A seems to be doing better because its loss rate is so low (5% is excellent). But if you look at GRR, Company B may have better numbers. The total loss of income is much more significant for Company A because it has lost a lot of important customers.
On the other hand, more people leave Company B. But most of those customers are going, so it doesn’t affect its bottom line as much.
Synonym
- GRR
Why it’s essential to keep track of revenue retention
Companies of all kinds should keep track of how much revenue they keep. But it’s beneficial for startups and small businesses still trying to find the right balance between product and market. It can help them determine what parts of their goods or processes they need to improve.
This is why it’s essential to keep track of income retention:
Look at how to keep customers.
Customer retention numbers can be a little confusing when looked at by themselves. In this case, a customer might renew their deal with you but also switch to a cheaper product. So, your retention rate will stay high, but your income retention numbers (and, in the end, your bottom line) won’t be as good.
It gives meaning to customer retention rates because it measures how much your customers are worth. Improving customer trust is essential, but you need to focus on making money to do it. A company might get the wrong idea about whether it is good or unhealthy based on retention alone if this doesn’t happen.
Figure out why customers are leaving.
The loss rate for a company should be zero in a perfect world. There are, of course, many outside factors that can cause employees to leave a company.
Rates that are “ideal” are between 2% and 8%. But even if your business isn’t that bad, you should still discover why people leave. It’s a problem that needs to be fixed if they’re all going for the same reason.
Companies lose their most important customers when they lose revenue at the same or higher rate than they lose customers. They need to look at revenue retention to determine if this is the case. The income retention rate is also helpful in these situations; businesses can use it to develop ways to keep their best customers.
Any way you look, income retention makes businesses want to learn more about why customers leave. They know they need to get feedback, try their product, and keep track of usage data to find common problems when they see a number that isn’t good enough.
Check and keep an eye on monthly recurring revenue growth
Regarding GRR, it’s not enough to focus on the right people. Still, businesses need to close enough deals to make money.
Because GRR separates marketing and sales efforts, it’s also the best way to track revenue growth from the point of view of getting new customers. Businesses can determine which sales strategies and efforts work best by monitoring how their GRR numbers change monthly.
Knowing your GRR lets you see your whole customer group and how it changes over time. When you link growth to specific strategies, campaigns, and activities, you can also understand how decisions affect your money.
Take steps to improve revenue retention.
GRR doesn’t consider the extra money that upsells and cross-sells bring in. That means businesses that use it can separate the effects of their marketing and sales efforts.
The customer success team isn’t the only one who has to do retention tasks. Sales and marketing are responsible for keeping customers since they are two supporting roles that should bring in and close leads.
When you have GRR, focusing on your ideal customer profile (ICP), positioning, messaging, and sales outreach approach is essential. If customers aren’t a good fit for your product, they won’t stay for long. This is a helpful way to stop a possible income retention problem before it even starts.
Return on Gross Revenue (GRR) vs. Return on Net Revenue (NRR)
That’s the main difference between GRR and its cousin, NRR: NRR considers cross-sells, up-sells, and upgrades, but GRR doesn’t. To put it another way, GRR shows how well a business can keep its current users. NRR shows how well a business can keep customers and get new ones.
Regarding business planning, focusing on GRR leads to different results. It would be best if you didn’t emphasize one over the other too much.
Once you know how to measure GRR and NRR, remember these things.
There are two types of experience: uniform and tiered.
When looking at NRR, significant customer growth is much more important than a small customer doing the same thing in a more minor way. Customer segmentation is critical because customers who pay more usually want and need more care.
One great example of this is a white-glove service for business customers. Larger companies that use your product across dozens of business units and maybe even thousands of workers should have account managers and support staff who are only responsible for them. They need more resources and a different approach that fits their wants (and, by extension, value) than an entry-level customer.
Companies miss this area when they only focus on GRR and customer trust. It affects people differently when you lose a more significant customer than when you give them something extra.
One good thing about GRR is that it’s a simple measure to track and automate. The problem is that today’s customers don’t want the same experience across all customer groups.
Bundling products vs. making great products
Getting more customers is one of the most long-lasting ways to make more money. Companies with an NRR well above 100% are likelier to go public or be bought out.
However, companies put too much emphasis on how they package their products when they depend too much on net income retention. Every year, they add platforms and features that aren’t necessary to make more money from upsells and cross-sells.
Since GRR only shows customer retention, every customer is precious. Businesses that pay attention to this measure care about the user experience and personalization. They also always ask for and act on feedback to improve the offering.
They must use a good mix of both to make the best product for their target market. They need to add features and services that will keep current customers happy and bring in new ones, but they shouldn’t lose sight of what the product should do (and what most of their customers do with it).
Pay attention to growth vs. scalability.
Scalability and growth are critical for a business’s long-term success, but they don’t always go hand in hand.
Because segmentation is such an essential part of NRR, businesses that only look at this measure sometimes make decisions based on the needs of their biggest customers. Focusing on the happiness of a small group of customers to keep and serve them better reduces the ability to grow.
This doesn’t mean that business customers don’t need extra care, though. Most companies that offer goods for businesses have versions of those products that can be changed in any way the customer wants (or at least offer custom tools and integrations).
However, the shortsighted view of “expansion at all costs” hurts the product and the user’s experience. And it makes businesses more dependent on smaller income streams, which is a big red flag for investors.
When every user is essential and the product roadmap isn’t changed too much, companies naturally make a product that more people can use. And that’s what GRR tells them to do.
How to Figure Out Gross Revenue Retention
Gross revenue retention is the amount of money a business makes from people who stick with it from one month to the next. To find it, add up all of your monthly recurring income (MRR) and remove any MRR you lost because of cancellations, downgrades, or churn.
The gross revenue retention formula is as follows:
Gross Revenue Retention = (Starting MRR – Churned MRR – Downgrades) / Starting MRR
Let’s look at an example to illustrate gross revenue retention calculations.
Suppose a company starts the month with $100,000 in MRR and loses $10,000 due to churn. They lose an additional $2,000 due to downgrades.
Gross Revenue Retention = (100,000 – 10,000 – 2,000) / 100,000 = 0.88 or 88%
In this example, the company’s gross monthly revenue retention was 88%. They lost 8% of their MRR during that period.
Things that affect GRR
Many things that affect net revenue retention also affect gross revenue retention.
Quality of the Goods or Service
Of course, a company can’t keep customers if its goods are terrible. People will not stick with your business for long if they don’t need your product or enjoy using it.
It works the other way: if your customers have a great experience with your product, they are likelier to stick with you and choose to use extra features and services, increasing your NRR and decreasing your GRR.
Price List and Deals
Most of the time, companies use penetration pricing to get users to upgrade or add services. Many businesses also offer different prices for different groups to make their products more accessible for them to get (for example, a student deal).
Such pricing plans should ideally be set up to attract new customers without alienating current ones. If you do it right, this can help increase GRR numbers and keep churn low at the same time.
Customer Happiness
To keep a customer, customer happiness is like the Holy Grail. People who are happy with your goods will use them for as long as possible.
It’s all about how well a product meets the wants and needs of users. Giving customers regular information, answering their questions quickly, and giving them a personalized experience are all crucial ways to keep customers from leaving and keep GRR steady.
Getting Leads
From the buyer’s point of view, targeted marketing campaigns and sales prospecting are the most important because they happen before the customer even uses the product. You might get a sale from a wrong lead, but they won’t be around long. They’ll figure out that the offer isn’t right for them and look elsewhere.
Sales and marketing targeting that doesn’t work well hurts GRR directly. On the other hand, getting your goods in front of the right people increases the chances that those people will continue to pay each month.
Plan for Customer Success
Customer satisfaction is a vital part of maintaining both net and gross income. To help buyers get the most out of the product, even though cross-selling and upselling aren’t crucial for GRR, they’re there for that.
Customer success teams ensure customers use the product correctly by offering personalized help and advice. They are less likely to drop out when they get the desired results.
Race to Win
There will be at least some change in the market because there are others. They are in charge of customer growth, marketing, and cold calling, just like you. Some loyal customers will try new goods and services at some point.
This can happen for no reason at times. A rival may have had a system integration that you couldn’t get. Maybe a new product was made just for their market. It’s also possible they hired a great salesperson who got them at the perfect time and place.
Tips on How to Raise the Gross Revenue Retention Rate
There are dozens of things businesses can do to raise GRR, just like infinite ways to lower churn. But in the end, it all comes down to three things: data, product, and customer experience.
Find customers and accounts that are at risk.
Predictive analytics and machine learning can help businesses with many customers find customers who are likely to leave before they do. You can also mark users who have shown unhappiness, like not using your product much or leaving bad reviews.
Here is the first place you should look to make GRR better. The most obvious threat to your GRR is customers who are likely to leave, but these problems can often be fixed.
Get free users to paying users.
Freemium lets people try out a service before they buy it. The whole point is to give them the most basic version of your product’s main features. As they get used to it, they’ll understand they need more.
For example, Trello’s primary project management tool in the Kanban style is free. But users can’t add more than one team member, use all of the app’s themes, or get to many other parts of it. It’s great for people who need to keep track of their tasks, but you’ll have to pay more if you want to work with others or get more advanced tools.
You could be making a lot of money if you don’t have paid users. Not every customer will become a paid user. However, a low freemium-to-paid-user conversion rate could mean the free plan has too many options. If not, your customers won’t think your product is worth their money.
Pay attention to account growth.
In many ways, customer data is the most essential part of every business activity. When it comes to GRR, it’s even more critical because it tells your customer success team when to talk to customers about ways to grow.
Key indicators like customer health scores, which consider license utilization, product/core feature usage, customer interaction, and resource consumption, can trigger buying signals.
The direct effect of growth is income, which NRR is more interested in than GRR. However, Retention is an indirect effect of growth. If an upsell, cross-sell, or voluntary upgrade goes well, the customer wants to keep using the product. Assuming that growth makes them better off, it also makes them a buyer for longer.
Find issues in the customer journey.
The B2B customer path is made up of many steps:
- Being aware
- Careful thought
- Calling
- Get buy
- How to Use and Grow
- Speaking up
- Loyalty and hanging on
- Exit
To find sticking points, look at your sales process, how the product works, and how you help customers after the sale. Do not add extra steps to the buying process, like a questionnaire or extra approvals. Instead, personalize the experience for each buyer with welcome emails and content suggestions made explicitly for them.
Please please your customers more.
Happy customers won’t leave if they can help it. You can keep many more customers if you ensure they get everything they expect from the goods and the customer service. It would be best to always look at what your customers say, find problems immediately, and move quickly to fix them.
Use polls to find out your Net Promoter Score (NPS) as part of your plan to make customers happier. Set a standard for it and keep an eye on it over time.
