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Everything You Need To Know About The GRR SaaS Metric

Iceberg model for saas banner

 

Today, founding and running a SaaS company can be one of the most lucrative businesses out there. A huge part of that is because a SaaS business can earn recurring revenue from each customer.

While traditional businesses only generate one-time revenue per customer or per deal they close, SaaS businesses earn a recurring revenue that could last for years.

That is IF you could retain your customers for all those years.

And to be on top of whether or not your customer retention is on track, you need to monitor various metrics.

One of these is the GRR SaaS metric or Gross Revenue Retention.

In this article, we will talk about everything you need to know about Gross Revenue Retention — how to calculate it, its difference from other retention metrics, the industry benchmarks, and how to improve your GRR.

So let’s get to it.

 

What Is Gross Revenue Retention?

 

Gross Revenue Retention (GRR) is a metric used in SaaS companies to measure how much of their recurring revenue from current customers is retained over a certain period of time, usually monthly or annually.

It answers the question: “How much recurring revenue are we keeping compared to what we had last month or last year?”

This metric is important because it tells you how your customer retention efforts affect your bottom line. If your GRR is high, that means you are able to keep more of your existing customers and bring in more recurring revenue compared to the previous month or year.

But how do you actually compute your GRR? Let’s find out.

 

How To Calculate Your Gross Revenue Retention

 

Calculating your GRR involves tracking your existing monthly recurring revenue (MRR) or annual recurring revenue (ARR), as well as the recurring revenue you lose over time.

This loss in revenue could be through customer churn or contraction (customers downgrading their subscriptions to lower plans).

So, you would need three types of recurring revenue.

  • Starting revenue: The MRR you have at the start of the month or ARR at the start of the year.
  • Revenue churn: The recurring revenue you lose due to customer churn.
  • Contraction MRR or ARR: The recurring revenue you lose due to downgrades.

To calculate your GRR, take your starting recurring revenue and subtract the revenue churn and contraction MRR or ARR. Then, divide this number by your starting recurring revenue.

 

Gross Revenue Retention Formula

 

For example, let’s say you have a total of $100,000 in monthly recurring revenue at the start of the month. Then you lose $5,000 due to customer churn and $2,000 from downgrades.

Your calculation for your GRR would look something like this:

($100,000 – $5,000 – $2,000) / $100,000 = 93%

This means that you have a 93% Gross Revenue Retention rate.

 

Gross Revenue Retention VS Logo Retention

 

It’s important to note that GRR is different from logo retention.

Logo retention, also called customer retention rate, measures the percentage of customers you retain over a certain period of time. On the other hand, GRR measures the amount of revenue you retain from those current customers that stayed.

To put this into perspective, it’s possible to have 100% logo retention (all your existing customers stayed) but still lose some recurring revenue due to downgrades.

In this case, your customer retention rate would be 100% but your GRR would be less.

 

Gross Revenue Retention VS Net Revenue Retention

 

A more common source of confusion for some people is the difference between GRR and Net Revenue Retention (NRR) or Net Dollar Retention (NDR).

Well, these two metrics are similar in that they measure the amount of recurring revenue you get from your existing customer base.

However, unlike GRR, NRR also takes into consideration your expansion revenue, which is the additional recurring revenue you get from upsells and cross-sells.

 

Net revenue retention formula

 

This means that it’s possible for your Net Dollar Retention to be higher than your GRR, even if you don’t have any customer churn and contraction. And while the maximum value for GRR is 100% (no churn and contraction), NRR can go well beyond that.

Let’s take an example from the GRR calculation we made earlier. Let’s say that, on top of your $100,000 MRR and the $7,000 total deduction from churn and contraction, you get an additional $10,000 in expansion MRR.

Your calculation for your net revenue retention rate would be something like this:

($100,000 + $10,000 – $5,000 – $2,000) / $100,000 = 103%

 

What Is A Good Gross Revenue Retention For SaaS Businesses?

 

More than just measuring your GRR, you also need to compare it with industry standards in order to know whether or not you are doing relatively well.

According to KlipFolio, SaaS businesses should aim for a Gross Revenue Retention Rate of 90% or higher. This means that you are able to retain 90% of the revenue from your existing customers each month.

However, the possible GRR values can also vary from one SaaS company to another, due to different factors.

One such factor is the size of the businesses or customer segments you’re catering to. A SaaS company whose customer base is made up of small businesses will likely have higher levels of customer churn than an enterprise SaaS company.

That’s why, for SaaS companies targeting small and medium-sized businesses (SMBs), the GRR benchmark is at 80%.

Meanwhile, enterprise SaaS companies should aim for 90% GRR or higher.

And if you’re an enterprise SaaS company with high annual contract value (ACV) deals, you need a GRR of 95% or higher.

 

How To Improve Your Gross Revenue Retention

 

Measuring how well you can retain your recurring revenue from your existing customer base is one thing. But it’s another to do something about it.

Remember that your GRR is just a metric. So, improving it shouldn’t just be about keeping the GRR metric high. It should be about what the metric represents — the recurring revenue you retain.

With that said, improving your gross revenue retention rate is all about reducing your churn rate and contraction.

So let’s discuss some ways to lower your churn and contraction, as well as some more immediate tips that can help you use your GRR more accurately.

 

1) Don’t Count Canceled Customers As Churned Customers Yet

 

You may be thinking “What? Isn’t the definition of churn the number of customers who cancel their subscriptions and stop paying for your SaaS product?”

Well, yes. However, customers who cancel their subscriptions will still have some days or weeks before the next billing date.

In other words, you still have time to win them back before their subscriptions actually end.

In this span of time, you can send them emails, call them, or offer them discounts and incentives to try to convince them to stay.

So instead of counting canceled customers as churned customers right away, wait until the end of the billing cycle before doing so. And try to win them back in the meantime.

 

2) Track Your Gross Revenue Retention Per Cohort

 

Cohort analysis is the practice of tracking a group of customers based on their characteristics, such as joining date and subscription plan.

By tracking your GRR per cohort, you gain insights into how well each particular group retains its revenue from month to month or year to year. This will help you identify which particular customer segments are more likely to churn or downgrade, so you can adjust your strategy accordingly.

For example, let’s say you group your customer cohorts according to the subscription plans they are subscribing to.

Then you find out that your GRR for your customers under the “Basic Plan” are higher that your GRR for customers in the other plans.

You can then focus your efforts on those particular customers and try to improve your GRR for these customer segments.

 

3) Focus On Customer Success

 

The very foundation of lowering your churn and contraction is providing an excellent SaaS product and an awesome customer experience to your users.

If they’re really enjoying the benefits that your SaaS solution provides, they won’t cancel their subscriptions. If they’re achieving their goals and desired outcomes with your product, they won’t need to downgrade.

That’s why you need to focus on customer success.

At the very least, you should provide each new customer with an engaging user onboarding process. This will help them get up to speed faster and experience the value that your SaaS product provides more quickly.

More than that, you also need to make sure that your customer success managers know your customer’s goals and are proactively giving them recommendations on how to achieve them.

Tracking each customer’s product usage can also help you provide personalized help to the customers who need it.

With a proactive and helpful customer success team, you can ensure that your users have the best customer experience with your product.

As a result, your customers won’t think twice about renewing their subscriptions (and even upgrading to a higher plan).

 

Final Thoughts On The Gross Revenue Retention Metric

 

Gross Revenue Retention (GRR) is an essential metric to measure the success of your SaaS business. By tracking it, you can gauge whether your SaaS product and customer experience are up to par and if you need to make any changes or adjustments.

Still, it’s best to track your GRR along with other retention analysis metrics that can give you even more specific insights. They can specifically tell you what areas you need to improve in order to reduce churn and contraction.

These metrics may include your customer satisfaction (CSAT) score, net promoter score (NPS), customer health score, and more.

By investing in the customer experience and proactively tracking your SaaS customer retention metrics, you can keep a steady flow of revenue into your business.

After all, happy customers are loyal customers.

Looking for more guides to help you grow your SaaS business? Check out our blog site here.

 

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Ken Moo
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