Imagine this: you launch your product and the first few months are remarkable. You notice new people signing up, trying your product and its features. You're excited, but after some time, you start seeing an increase in churn.
Yikes! It's a nightmare for every SaaS business owner. And if you’re only tracking vanity metrics, you’ll never understand why your churn rate is through the roof.
It can be frustrating — which is why we want to introduce a SaaS business metric that helps you actually track and measure your performance — net retention rate or net revenue retention.
This blog covers:
- What is the net revenue retention rate?
- Why do you need to track net revenue retention rate?
- Reasons for low net revenue retention rate.
- How to improve your net revenue retention rate?
What is the net revenue retention rate?
"Net revenue retention is the ultimate customer success metric that tells you how you're performing against your goals — growing accounts and minimizing churn." — Caila McDonald, Customer Success at Scribe.
Net revenue retention rate is one of the popular customer success KPIs used to track and measure the performance of SaaS businesses. It depicts how your existing customers are impacting your revenue generation.
Here are a few ways your existing customers can impact your revenue:
- When customers churn.
- When they switch to a competitor's product.
- When they upgrade or downgrade a plan.
But another component to consider while analyzing your net revenue retention is your gross revenue retention.
Gross revenue retention is beneficial in the context of net revenue retention. If you see an increase in net revenue retention but your gross revenue retention or GRR is low, your business will have trouble attracting the interest of investors.
Because it shows only a handful of customers are sticking with the product and moving down through the sales funnel.
To make a concrete decision, you need to keep tabs on both metrics.
Why do you need to track net revenue retention?
Net revenue retention rate (NRR) tells you whether your product is worth people's time and engagement or not. Most users have no problem canceling a subscription if it doesn't meet their requirements or make their lives easier.
"It’s important to track net retention rate because it’s a metric that can help you determine if your customers are happy with your product. If the numbers are high, that indicates a high level of customer satisfaction. If the numbers are low or dropping off after a certain period of time, that indicates that you need to evaluate your offers and run some testing to identify areas of opportunity." — Logan Mallory, VP at Motivosity
NRR is a crucial customer success metric for assessing your financial performance. Once you look at net revenue trends, you can learn about your financial stability, retention rate, expansion revenue and growth.
It’s also a valuable asset for your customer success team. They can analyze and improve their strategies once they spot the loopholes. racking is an essential point. If you want to improve your customer satisfaction strategically, you need to track anything from the cost per lead you pay to the number of leads each campaign brings.
How to calculate the net revenue retention rate?
Here's how you can calculate your net revenue retention rate:
- E — number of customers at the end of the period.
- N — number of new customers during the period.
- S— number of customers at the beginning of the period.
Net revenue retention formula
[(E-N)/S] x 100
Here's an example to help understand this better.
Let's say you had 60 customers at the end of the period. 20 new customers purchased your product in the last four months. You had 70 customers at the start of the four months.
[(60-20)/70] x 100= 58% is your net revenue retention rate.
Reasons for low net revenue retention rate
There are various factors contributing to your net revenue retention. But we're here to talk about the two most crucial reasons — a poor onboarding process and ineffective customer support.
1. Poor onboarding process
The onboarding process can either make or break your revenue. According to Salesforce, 74 percent of people can switch brands if they find the onboarding process too complicated.
Your user doesn't know how to use the product yet, and if you make onboarding a task for them they’ll churn without even finishing it.
Here are a few more ingredients for poor and tasteless onboarding.
- Lack of communication between sales and customer success teams.
- Overlooked technical aspects.
- Lack of a straightforward process.
- Lack of personalization.
A lousy onboarding process can cost you monthly recurring revenue and current customers. Enhance it by including personalization and prioritizing customer feedback over anything.
With Scribe, you can create documents and Pages for onboarding in minutes without having to make a bunch of videos and long text documents. (Did we mention no one reads those long documents anymore?)
Can we toot our own horn just a little bit? Here’s why users love Scribe.
2. Ineffective customer support
Poor customer service can impact your business’ long-term revenue health. It can also sorely damage your reputation — angry customers often take their disappointment to keyboards and vent online.
According to AernaCX, 61 percent of customers have written a bad review about a brand after a negative customer support experience. And on social media word of mouth travels faster than anything else. One ineffective customer support can cost you future and current customers — impacting your net revenue retention.
Keep reading to see how you can face these modern challenges and improve your net revenue retention rate with tailored strategies.
How to improve your net revenue retention rate for ongoing growth & consistency
It boils down to customer success. You have to prioritize the customer experience at every corner to improve your customer retention rate. Anyone who signs up for your product should understand and adopt it well.
How do we make that happen? Here are solutions you can leverage to satisfy customers and boost your net revenue retention rate.
1. Collect customer feedback
Gathering customer feedback is the ideal way to know your users’ perceptions of and experiences with your product.
When you collect feedback, it shows you value what existing customers have to say. Not only with this help with retention, it’ll foster loyalty and (you guessed it) increase the net revenue retention rate.
Here are a few ways to collect feedback.
Customer satisfaction surveys
Conduct customer satisfaction surveys by collecting customer information during onboarding. Then send a post-purchase email to ask questions about their onboarding experience.
Keep your survey short and to the point — somewhere between five to ten questions is ideal.
Even better if you include multiple-choice questions. That way customers can effortlessly share feedback without spending time writing long paragraphs.
Here are some key focus areas to ask about.
- Customer service.
- Check-out experience.
- Suggestions for improvement.
User-generated content refers to videos, shout-outs, reviews and images created by/with customers. It doesn’t directly contribute to the net revenue retention rate but is a critical component for developing social proof that can help you increase it in the long run.
ChaUntelle JN Lewis gave a shout-out to MeetHarlow and its founders because of their content. This post has influenced a lot of new people to join the platform.
By monitoring UGC, you can understand your customers' emotions. This type of content is a crucial area to focus on to build loyalty and trust.
UGC is all about organic content, but you can also encourage your users to share a post about your brand.
HubSpot created this post to honor Gemini season and asked people to share their astrological twin with HubSpot.
Here are a few ways you can create the UGC incentive:
- Collab with experts in your industry to create posts.
- Repost the content created by customers on your brand's social page.
- Offer exclusive discounts and gift cards for sharing their reviews.
- Hold contests to encourage users to participate.
Online customer reviews
For SaaS businesses, websites like G2 and Capterra are the holy grail. Your users will either leave a social media review or comment on your product on such websites.
It's your job to monitor their reviews and respond to them quickly. Address positive reviews with humility and encourage them to refer more people. For negative reviews your reply should be thoughtful and helpful enough to solve the customer's problems rather than getting defensive.
2. Remodel your customer service
Your customer service efforts can help you substantially increase or decrease net revenue retention.
Here are a few principles to remember while creating your customer service guidelines.
Prioritize customer satisfaction
The ultimate goal of a customer service team is to satisfy customers. So rather than focusing only on customer acquisition, you need to focus on retention.
For example, you can allow a refund if customers aren't satisfied with the product or an additional discount.
Sure, you’re a business, but you're still selling to real people. Show your gratitude to customers whenever you can.
Regular (or spontaneous) recognition shows customers you don't just see them as revenue numbers — you actually care about them and their goals.
For example, Deel, a payroll and compliance software, sent an email to its users saying that they're increasing referral bonuses for a limited time to show their thanks.
These offers also often lead to additional revenue. Everyone wins!
Train your team
Your customer service team is the face of your brand. Train them on proper etiquette and incorporate them into the onboarding process.
Along with standard training sessions, hold periodic workshops to refresh their skills and offer the latest strategies.
3. Introduce a loyalty program with additional perks
Loyalty programs for your existing customers are a great way to increase your retention rate. They offer special services, discounts and exclusive updates.
The primary goal is to make customers feel special and increase your net revenue retention rate with referral programs.
For example, you can offer them better seasonal deals on your software subscriptions or add them as beta testers. This gives them access to the latest features before anyone else.
This feeling of exclusivity differentiates them from other customers (and differentiates you from competitors.)
4. Use churn surveys to know why customers are leaving
Churned customers are the primary reason for your business's low net revenue retention rate. You're making a huge mistake if you just let them go without any additional information.
Churn surveys are the best way to understand what your product is missing and what needs to improve.
Here are some tips you can use while creating your churn survey.
Make it simple
The survey form doesn't have to be a two-page document asking for long answers. Take MailTrack, for example, and the simple survey they use.
Create a multi-choice answers list with potential causes. Based on what users click, you have the opportunity to offer alternatives that keep them around.
For example, if someone says your product is too expensive, suggest they downgrade to a free or lower plan instead.
A/B test the survey forms
If you're creating a churn survey for the first time you can A/B test different churn survey types to find the best engaging one.
Because users tend to engage with content in different ways, A/B testing will help you decide on the best template for you.
Here are some of the A/B tests you can try:
- A different number of questions.
- Other formatting and style. (radio buttons, different colors, fonts and drop-down list)
- Different survey types. (Multiple choice, open-ended, or a combination of both.)
5. Improve your onboarding process
Onboarding is crucial for your SaaS business and the first chance to woo your customer. It's also a key element in increasing your net revenue retention.
According to Wyzowl, SaaS companies lose 75 percent of new customers within the first week without an effective onboarding process.
A great onboarding process makes news users confident about your product's problem-solving ability.
It also helps you decrease the churn. Retention begins with onboarding. Users with a positive onboarding experience will likely stick around.
However, if you notice any of these signs — your SaaS onboarding needs improvement.
- Users are not completing the sign-up process.
- Users are not upgrading for a longer term.
- Users are churning after paying their first invoice.
- Customer acquisition cost is high and getting higher.
Here’s a detailed checklist for you to follow while creating your onboarding process. Read more here.
Increase your net revenue retention rate with better strategies
NRR is a critical metric that says a lot about your customers. It’s also a live testimony to your strategies and efforts. And now, you have a complete guide at your hands with actionable tips to improve yours.
Want to create stronger onboarding and customer success documentation with easy, efficient and instant step-by-step guides? Get started with Scribe today!