What is GRR?
The GRR (Gross Revenue Retention) is a metric that evaluates your customer retention efforts over a specific timeframe. Unlike the NRR (Net Revenue Retention), the GRR focuses solely on customer retention and doesn’t factor in revenue generated from expansion, upselling, or cross-selling. By measuring GRR, you can assess your effectiveness in retaining existing customers and gauge your overall retention success. This means that this metric solely focuses on the revenue retained from existing customer and revenue expansion is not taken into account.
A high GRR rate indicates that the company is effectively retaining its customer base, while a low GRR rate may suggest that the company is struggling to retain customers and may need to improve its customer retention strategies.
Difference between GRR & NRR
GRR and NRR are both vital metrics used to assess customer retention, but they focus on different aspects of revenue performance.
The Gross Revenue Retention (GRR) measures the percentage of customers retained over a specific period, regardless of any additional revenue generated from those customers. GRR provides a clear picture of your success in retaining existing customers and gauging overall customer retention efforts. It ranges between 0% and 100%, reflecting the proportion of customers you managed to retain.
On the other hand, the Net Revenue Retention (NRR) metric takes into account not only customer retention but also the additional revenue generated from existing customers through expansion, upselling, and cross-selling. NRR quantifies the net effect of upsells and expansion revenue offset by churn and downgrades. It is typically expressed as a percentage and can exceed 100% if the upsell and expansion revenue surpass the lost revenue due to churn and downgrades.
While GRR focuses solely on customer retention, NRR provides a more comprehensive view of revenue performance, incorporating the impact of both customer retention and additional revenue streams.
Understanding the difference between GRR and NRR is crucial for SaaS businesses as it helps executives to evaluate the effectiveness of their retention strategies and revenue growth potential in terms of customer success. By monitoring both metrics, you can gain valuable insights into customer behavior, identify areas for improvement, and make informed decisions to drive sustainable growth.
How do you calculate GRR?
To calculate the GRR for your SaaS business, follow these steps:
- Identify the MRR/ARR of your existing customer base at the beginning of the period.
- Calculate MRR/ARR at the end of the periode
- Identify the MRR/ARR generated through expansions or upsells
Here’s the formula for calculating GRR (for ARR):
GRR = (ARR at the end of the period – ARR generated through expansion/upsells) / ARR at the beginning of the period
For example:
A company has an ARR of $10M at the beginning of the period. In the following month, company generates $2M ARR through plan upgrades and user expansion. Besides the company loses $1M ARR through revenue churn. This means, the ARR at the end of the period is $11M, so the NRR would be 110%. When it comes to GRR, the ARR at the end of the period (excluding upsells & expansion) would be $10M – $1M = $9M. This results in an GRR of $9M / $10M = 90%.
Why you should look at GRR?
GRR helps SaaS companies to:
- Identify revenue loss
By measuring GRR, SaaS companies can identify when customers are leaving, such as dissatisfaction with the product, poor customer support, or a lack of value from the service. If you would only look at NRR, expansion & upsell from a group of satisfied customer could hide problems at your customer base. - Improve customer retention strategies
GRR helps companies to understand how well their retention strategies are working and where they need to improve. By improving retention strategies, companies can reduce revenue loss due to customer churn and improve overall revenue growth. It is very important to build a long and sustainable customer relationship in order to keep the churn rate low. - Evaluate the success of your efforts
GRR helps companies to understand the impact of your internal efforts on customer retention. If the GRR is high, it suggests that the efforts of your customer success teams are effective in attracting and retaining customers.
In summary, measuring GRR helps SaaS companies to identify revenue loss due to customer churn, improve retention strategies, and evaluate the success of sales and marketing efforts.