Net Revenue Retention (NRR) has become a key indicator for businesses with recurring revenues. It measures revenue growth from current customers. For instance, an NRR of 110% implies you’ve earned 10% more recurring revenue this year from last year’s customers.
There are only two ways to increase your revenue: acquire new customers or earn more from existing ones. NRR ignores new customer acquisition and measures your effectiveness at growing revenue from existing customers.
Even though many companies now recognize its importance, they still don’t give NRR the attention or resources it deserves. Here is why:
A subscription-based business must prioritize attracting and retaining new customers in the initial stages of a new product. Failure here is a catastrophic loss of development resources. Someone is likely to lose a job or at least not get promoted. Thus, new customer acquisition is urgent!
After you have built a decent customer base, growing customers becomes more important. In fact, it can become a higher percentage of your overall growth, but many companies overlook this. Why? Because it’s NOT urgent. Nobody will lose their job if they don’t grow customers. As long as you don’t lose customers and keep winning new ones, the company is growing and practically oblivious to this extremely important growth focus.
Increasing NRR isn’t easy. It demands courage to adjust prices, the savvy to structure products for upgrades, the acumen to set pricing metrics that reflect customer value, and deep market segment insights to innovate relevant products. No, it isn’t easy, but it’s incredibly profitable.
If you’re a subscription business with a robust customer base, I recommend you prioritize enhancing your NRR. Set it as a goal. Commit resources to understanding market needs, crafting compelling product packages, and implementing effective pricing strategies.
It’s challenging, but the payoff is significant.
How do you grow your customers?
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Now, go make an impact!
