Fact: Acquiring new customers is more expensive than retaining existing ones. While you need to invest in both acquisition and retention for sustainable growth, it is critical to remember that prospective customers need to make more choices along their journey, which makes their customer experience more of a challenge for your customer success teams.
If you are a SaaS business, these choices are proportional to the number of subscription plans and additional features you offer. What’s more, if competition is rapidly increasing in your sector, you’ll need to monitor your net revenue retention (NRR) more closely. Subscription model products use NRR as the main indicator for business health, as it takes revenue churn and retention success into account.
This article covers:
- What is NRR
- Why is Customer Experience (CX) important for NRR?
- How to increase NRR
What is NRR?
The net revenue retention (NRR) refers to your total revenue, calculated over a month or year, minus the revenue churn, which could refer to expiration, cancellation, or downgrade in the subscription. To calculate NRR, you need to add up the monthly recurring revenue (MRR) and the revenue generated through upgrades and cross-sells, and then deduct the revenue lost from downgrades or churn. All of this then needs to be divided by the MRR.
Source: Baremetrics (2021). NRR formula.
TIP: Be sure to make a decision as a company as to how you calculate your MRR. Are you including discounts and deals or not? True MRR often excludes these numbers. While it may seem counterintuitive, companies that go the exclusions route, often see a more consistent growth pattern, which looks better to investors.
The result obtained should be a percentage above or below 100%. If it exceeds this amount, then your business is healthy and can grow without having to acquire new customers. On the other hand, an NRR below 100% means you need to address your customer retention rate (CRR) and upsells and cross-sells to improve your business health.
Why is Customer Experience (CX) important for NRR?
Customer experience refers to the whole consumer journey, from the moment they gain awareness of your product and throughout the post-purchase stages. Customer Success (CS) teams are tasked with mapping the customer journey to provide quick and efficient solutions to user pain points. This means gathering customer feedback at different stages to develop an ideal CX. Any sign that diverts from this successful experience will require immediate action, usually in the form of retention tactics and onboarding initiatives, to increase upsells and cross-sells.
Since NRR is a metric resulting from values such as revenue churn and MRR generated from upgrades and cross-sells, it represents to us, one of the most significant metrics to monitor to achieve a successful CX. Additionally, the Net Promoter Score (NPS) and Customer Satisfaction Score (CSS) are also used by CS teams to improve CX strategies.
How to increase NRR
If your NRR is 105%, chances are you might feel you’re doing a pretty good job. However, if your business follows a subscription model, you’ll need to analyze this metric further – most successful plans may be shadowing others that require immediate action. These CX initiatives will help you and your CS team increase NRR, and reach a healthy revenue retention rate.
Focus on the right cohort
To target the right customers, you’ll need to carry out a segment analysis. By segmenting your customers according to the type of subscription, duration of the contract, number of purchases, and other purchase behavior characteristics, you can easily identify the cohort that is performing worse. What’s more, you can identify the cohort that is performing well and use similar initiatives for the other plans.
Customer feedback loop
A customer feedback loop is a system developed to collect customer feedback at set intervals. Feedback can be gathered via surveys, interviews, or focus groups. For example, the NPS scores are obtained through surveys where users rate your service from -100 to +100. You’ll not only need a system to gather the feedback, but also a clear internal communication structure that shares it t with the rest of the departments, including sales.
Speaking of internal communication, some companies have implemented an employee feedback loop. This can help align everyone in your business involved in CX, from the CS team to the sales reps. It’s the most straightforward way to find out about the challenges faced by your team, whether it’s related to software use or communication skills.
Customer communication calendar
It’s not always the case that customers willingly reach out to you or respond to surveys. That’s why developing a customer communication calendar will help your CS team manage customer engagements, and quickly identify upselling and cross-selling opportunities. This will require adopting a proactive customer service approach. For example, you can register all communication held with customers to receive an automatic alert when a user hasn’t interacted with your brand for a given period of time. This will also help you optimize upselling or cross-selling programs since you’ll be able to anticipate customer interactions.
Versatile Self-Serve Support
You can develop a set of customer self-service tools like a Knowledge Base, FAQs, blog, community forum, etc. These allow customers to find answers on their own terms, without having to reach out to your customer support team.
Other self-service features include in-app messages and widgets which can help your customer get the support they need as soon as they require it. Apart from having a direct impact on NPS and CSS scores, these tools help reduce the time it takes for your customers to realize the value of your product, aka time-to-value (TTV).
An onboarding strategy is the best way to show the value of your product from the very beginning. Product Flows and in-app messaging can be used for newly acquired customers or customers that have upgraded to a new plan. The sooner they realize the value of your product, the sooner they’ll engage with it. Don’t forget, it’s not about securing a long-term investment, but finding that common ground with your customers: your product value.
Customer Success Platforms are the go-to solution for most SaaS companies to collect and track data on customer behavior to create more efficient customer retention and engagement programs. For example, FROGED helps you create personalized emails and target campaigns based on users’ engagement with your product.
Another type of customer retention tool is a dynamic live chat where customers are immediately referred to the correct agent. This not only helps your CS team resolve issues quickly but also helps streamline communication on the same platform. A CS platform will not only make it easier for your team to implement CX strategies, but it will also help everyone involved monitor growth metrics such as NRR more closely.
Focusing on just some of these key aspects in your own CX could increase NRR and ensure your business is happy and healthy. To learn more about how to unlock the full potential of customer success platforms, read How to build your Customer Success Strategy using a Product Success Platform.