In today’s competitive business environment, mastering revenue metrics is pivotal for sustainable growth. Two key metrics are GRR, or gross revenue retention, and NRR, or net revenue retention.
I will not dive into how to calculate them as it is widely available information, the benchmarks are also available and periodically change. Instead I will focus on when they should be used and under what conditions one may be more important than the other.
Each provides unique insights into a company’s revenue health and helps shape strategic decisions. Knowing when to focus on GRR vs. NRR can profoundly influence your business strategy and performance.
When to focus on GRR
Core customer retention: GRR is vital for assessing the retention of your core customer base, excluding the effects of upsells or cross-sells. This metric is particularly crucial for companies in early stages or transitioning to a subscription model, as it measures the loyalty and satisfaction of existing customers, providing a clear picture of baseline retention rates.
Service stability assessment: For essential or subscription-based services, such as utilities or basic memberships, GRR is indispensable. It measures how many customers maintain their core services, ensuring the stability of the primary revenue stream and aiding in churn prevention.
Incentivizing customer loyalty: By prioritizing GRR, companies can align their sales and customer success teams with the goal of retaining customers, fostering long-term relationships, and reducing churn. This focus helps build a loyal customer base that serves as a stable foundation for long-term growth.
When to focus on NRR
Revenue growth maximization: NRR is crucial when aiming for overall revenue growth from the existing customer base. It includes expansion revenue from upsells, cross-sells and renewals, providing a comprehensive view of revenue health, especially important for mature companies seeking to maximize growth opportunities.
Promoting upsells and cross-sells: Companies looking to boost revenue from current customers should prioritize NRR, as it encourages sales teams to explore expansion opportunities. This focus can drive revenue growth through enhanced customer value and increased average customer spend.
Balancing acquisition and retention: While new customer acquisition is essential, NRR highlights the importance of maximizing revenue from existing customers. Tracking NRR ensures a balanced approach between gaining new customers and expanding relationships with current ones, optimizing overall revenue performance.
Incorporating both GRR and NRR into your business strategy as well as to your sales and support KPIs should provide a holistic view of revenue dynamics, ensuring a balanced approach to growth and customer retention.
Itay Sagie is a strategic adviser to tech companies and investors, specializing in strategy, growth and M&A, a guest contributor to Crunchbase News, and a seasoned lecturer. You can connect with him on LinkedIn for further insights and discussions.
Illustration: Dom Guzman
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