As a SaaS company, should you focus on gross retention or net retention?
Did you know that increasing customer retention by as little as 5% can more than double a company’s revenue? That sounds like something to focus on right there…
Gross retention and net retention are two great metrics to get an overview of how your business is doing. They’re great indicators of your retention levels – the higher the metric, the more successful your business is.
But how do you know which one is the right one to focus on? Choosing between them is a job in itself! Well, it really depends on your priorities. What’s more important is knowing how to improve that all-important metric.
In this article, we’ll cover everything you need to know about net and gross retention, including:
- What is Gross Retention?
- Gross Retention vs Net Retention
- What metric to focus on
- Tips on How to Improve Net Retention
- Tips on How to Improve Gross Retention
What is Gross Retention in SaaS?
Gross Revenue Retention (GRR) is the metric that allows you to calculate the number of customers you have retained in a given period.
To calculate it, you use the following formula:
Unlike Net Retention, Gross Retention does not take into account your expansion. In other words, the change in revenue from the start to the end of the month.
A high GRR means that customers are spending more money over time, whereas a lower GRR means customers are either churning or purchasing less.
Gross Retention vs Net Retention
Gross retention and net retention look super similar at first glance. The only difference? Expansion. And this one element makes a real difference to the types of objectives you can focus on.
With NR, you can pay close attention to your revenue trajectory, enabling you to formulate your upsell and cross-sell strategies accordingly.
GR, on the other hand, gives you the power to measure your revenue’s stability without having to take expansion opportunities into account. What’s more, you can keep track of downgrades and churning.
What metric to focus on
So the question is, how do you choose between GRR and NRR as the chosen metric for your SaaS company?
At first glance, the net revenue retention (NRR) metric may appear to provide a better picture of revenue growth. But they both their unique advantages.
On one hand, GRR it’s super helpful when it comes to determining the long-term health of your business. However, over-focusing on churn and retention rates can lead to a reduction in profits.
On the other hand, NRR is a strong indicator of how efficient your business is at expanding current accounts, and which of your products is in high demand.
We can’t choose for you, but what we can do is show you how to improve each metric. Let’s take a look!
Tips on How to Improve Net Retention
Boosting your NRR rate is easier said than done, so we’ve included a few tips to give you a helping hand.
1. Harness in-app messaging
Use in-app messages to deliver relevant messages that speak to your customers’ needs. You can use these to give them an increased understanding of your product value or use them as an opportunity to encourage the upgrading of their accounts.
2. Proactively identify detractors with NPS surveys
NPS surveys are a super useful way to measure customer loyalty and anticipate potential churn.
With the feedback acquired from these surveys, you can identify detractors who rate your product 6 or below, indicating a higher risk of churning or downgrading. You can even include a follow-up question to discover where your customer experience could be improved.
Tips on How to Improve Gross Retention
That’s not to say that boosting your gross retention is any easier to handle, so we’ve thrown in a few tips to help you out with that as well.
1. Track in-app user behavior
Track user behavior through product flows to identify trends and segment users for more effective strategies. This allows you to gain deep insights into customer behavior and make data-driven decisions to optimize user experience by improving the product itself.
Check out this article for more information on the ways to track customer behavior in order to improve your product.
2. Boost customer satisfaction through self-service support
Providing proactive customer support is a fantastic way to reduce friction in your product, shorten your users’ learning curve, and make your customers ambassadors of your product. Self-service support consists of FAQs, troubleshooting tips, and a good knowledge base.
Gross Retention vs Net Retention in SaaS
When it comes to retention in SaaS, finding your chosen metric is no mean feat. These two metrics provide essential data to make better decisions about the future of your business.
With the combined insights of gross and net retention metrics, you can better understand customer patterns and trends and figure out exactly what will make your customers stay.
By investing in self-service support, making use of in-app messaging, and sending out NPS surveys every once in a while, you can easily get your NR and GR looking really good.
Want to learn more about customer retention? Book a Demo to discover how FROGED can help increase your GR or NR rate directly inside your product.