Understanding NRR, Using a Nautical Metaphor

Join Captain Retention Expansion aboard the SS SaaS as we explore the critical metric of Net Revenue Retention (NRR) through a whimsical and educational tale.

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6/14/20243 min read

The Captain’s Guide to Navigating NRR for SaaS

Imagine you’re the captain of a grand ship sailing the open seas. Your ship, let’s call it the “SS SaaS,” is a marvel of modern technology, equipped with every feature and amenity your passengers could ever need. Your mission as captain is to ensure that you attract new passengers, and that you also keep your current passengers happy, entertained, and willing to stay on board for the entire journey.

In order to do this, it’s crucial to understand and optimize Net Revenue Retention (NRR).

What is NRR?

Net Revenue Retention (NRR) is a key metric used to measure the revenue a company retains from its existing customers over a specific period, taking into account upgrades, downgrades, and churn.

In simpler terms, NRR answers the question: “How much revenue do we keep and grow from our existing customers?”

  • NRR of over 100% means you’re retaining all your existing revenue AND also growing it.

  • Less than 100% indicates you’re losing more revenue than you’re gaining from your current customers.

Back to our Nautical Tale…Setting Sail

Captain Retention Expansion, the master of SS SaaS, knows that a ship’s success depends on two primary factors: attracting new passengers and ensuring current passengers remain loyal and happy. Let’s dive into a sea of understanding how NRR works!

Captain Retention Expansion starts their journey by attracting a diverse group of passengers. These initial passengers represent the starting revenue from existing customers. Let’s say the Captain begins with 1,000 passengers, each paying $100, providing a starting revenue of $100,000.

Stormy Seas: Downgrades and Churn

As the ship sails, not all sailing is smooth. Some passengers find the cabins too small or the food not to their liking and decide to leave at the next port. This represents customer churn. Other passengers request to move to smaller, cheaper cabins, symbolizing revenue downgrades. Let’s say 100 passengers disembark at the next port (churn) and 50 downgrade to $50 cabins. This means a loss of $10,000 from churn and $2,500 from downgrades.

Luxurious Upgrades: Revenue Growth through upselling and cross-selling

Captain Retention Expansion doesn’t let the downgrades and churn sink his ship because every Captain has a few tricks up their sleeve. The Captain introduces exclusive amenities for upgraded cabins: a luxurious spa, gourmet dining, and an on-deck entertainment show. Many passengers are thrilled and choose to upgrade their cabins. This represents upselling and cross-selling opportunities. Suppose 200 passengers upgrade to premium cabins, paying an additional $50 each. This brings in an extra $10,000

Calculating NRR

At the end of the voyage, Captain Retention Expansion needs to calculate the ship’s net revenue retention. The final revenue from existing passengers would be $97,500.

This means that while Captain Retention Expansion has managed to retain a significant portion of revenue, there is still room for improvement to achieve 100% or more.

The Lesson of the Seas: NRR Steers the Ship

Captain Retention Expansion’s adventure illustrates a crucial point for any SaaS business: maintaining and growing revenue from existing customers is just as important as acquiring new ones. By focusing on NRR, businesses can ensure they are not only keeping their current customers happy but also finding ways to increase their value over time.

High NRR is indicative of customer satisfaction, loyalty, and engagement. It’s a signal that your customers find ongoing value in your product and are willing to invest more. NRR also helps you identify areas for improvement like reducing churn, minimizing downgrades, and capitalizing on upsell opportunities.

Just like Captain Retention Expansion’s SS SaaS, your business can navigate the stormy seas of the market by keeping a close eye on NRR. Focus on delivering value, understanding customer needs, and finding opportunities to enhance their experience. By doing so, you’ll ensure smooth sailing towards growth and success.

Ready to set sail and optimize your NRR? Take a look at BackEngine. Our mission is to maximize customer retention and expansion by ensuring every part of the company is aligned with and proactively driving towards customer needs. BackEngine drives NRR by analyzing every customer interaction—calls, emails, and Slack messages—so that everyone, from front-line teams to the C-suite, understands and acts on what’s needed to retain and expand accounts. Click here to book a demo and learn more or visit www.BackEngine.com for more information.