Learn how to calculate NRR and how your Partner Ecosystem can help drive sustainable growth.
We’ve seen signals that SaaS companies have been pivoting their strategies to safeguard revenue and grow net revenue retention (NRR).
- 73% of Salesforce’s new bookings come from its installed base.
- Job openings for account manager roles have increased by more than 50%, compared to job openings for account executives.
- Airtable announced it would begin focusing on enterprise business (and lay off 27% of its workforce). A higher average revenue per account (ARPA) generally leads to lower churn.
Yet, traditionally, a higher percentage of partnership teams have key performance indicators (KPIs) that focus more on new business, like “partner-sourced revenue” and “partner-sourced leads”. Meanwhile, more retention-specific metrics like “integration adoption” tend to be the least common KPIs.
One contributor of higher NRR: making your product “stickier” and a critical part of your customers’ tech stacks. In 2022, more than half of partnership leaders didn’t know how much their integrations impacted churn. (At Crossbeam, we helped address this need for data by sharing how to calculate your tech ecosystem’s impact on churn and other resources.) Then, in 2023, we learned that integration users on average are 58% less likely to churn.
(Check out the 2023 State of the Partner Ecosystem for more insights around partnership KPIs and the impact of Ecosystem-Led Growth).
Although we are still in the beginning stages of seeing the true impact that Ecosystems have on NRR, partnership leaders are well-positioned to make the case for investment in customer growth.
We analyzed a cohort of ~300 Crossbeam customers and learned that there is a high amount of potential revenue attainable across their open opportunities on existing customer accounts. These are customer accounts where there’s an upsell, cross-sell, or expansion opportunity and where partners in their ecosystem can help close the deal.
Especially in times of market volatility when new customer acquisition is hard to come by, growing your existing accounts is critical. In a Forbes Insights and Sailthru study focusing on e-commerce, those who prioritize retention over new customer acquisition were more likely to increase their market share and less likely to increase churn. As a bonus, nearly 90% of those focused on retention are exceeding their new customer acquisition goals.
The majority of companies focusing on new customer acquisition reported doing things, “the way they have always been done”. As a partnership leader with influence on every go-to-market (GTM) function and access to an entire Ecosystem of partners, you have an opportunity to drive sustainable growth in a heavily underutilized area — retaining and growing your existing customer accounts.
What to expect:
- What is Net Revenue Retention?
- Growing your existing customer accounts costs less
- Loyal customers become advocates who help drive referrals and retention
- A high NRR is a positive signal for growth
What is NRR?
Your net revenue retention (NRR) is revenue that your company maintains from its existing customer accounts, including additional revenue from those accounts through upsells or expansions. NRR is always a percentage. If you maintain all of your customer accounts at exactly the same revenue (neither losing any revenue from downgrades or churn nor adding any from customer growth), then your NRR is 100%.
In order to improve your NRR, you’ll need to protect your revenue by decreasing churn and increase revenue by influencing cross-sells, upsells, and expansions. When customers churn, it negatively impacts your NRR. When customers grow their accounts with you, it positively impacts your NRR. A note: Net new revenue from new business acquisition does not impact NRR.
A basic formula for calculating NRR from Gainsight:
(Starting Annual Recurring Revenue, plus all renewals, cross-sells, price increases) – (down sells, churns, and other revenue contractions) ÷ (Starting ARR) during a consistent measurement period from only your existing customers.
Note: Depending on your sales model, you can calculate NRR using ARR or MRR.
Your NRR quiz:
Let’s say you started out with $80M in ARR. In a six-month time period, two customers churned, and you lost a total of $2M ARR. During that same time period, you expanded a handful of customer accounts, which led to an additional $6M ARR. What is your NRR over the given time period?
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Answer: 105% NRR
Benefit #1: Growing existing customer accounts costs less
Acquiring new customers requires more budget spend and resources than growing existing customers. For some, the cost of acquisition has risen by as much as 50%. Acquiring a new customer might require spending on ads, events, intent data, account-based marketing, and more as you learn about and nurture your prospects. It can cost four to five times more to acquire a new customer in comparison to retaining an existing customer, and you might not see a return on your investment for some time — especially when you factor in discounts or freemium users in a product-led growth model.
With existing customers in SaaS, you often have a direct relationship with your customers and can rely on internal resources to communicate value. Your existing paid customers already contribute to your bottom line, and you can grow their accounts through upsells and expansions.
A few examples of how Partner Ecosystem influence account growth:
- RingCentral upsells 3x as frequently with partners than without, and the dollar amount of those upsells is 4x the rate of upsells with no partners involved.
- A Senior Customer Success Manager at Freshworks says working with partners has helped his team retain customers who were likely to churn upsell the accounts for more annual recurring revenue (ARR), and sign them for multi-year deals.
- RollWorks customers who are using partner integrations renew at a rate approximately 30% higher than customers who don’t.
Research by McKinsey shows that leaders who prioritize customer experience see two times higher revenue growth. Additionally, your happiest customers become advocates who can help influence new customer acquisition and retention.
Benefit #2: Loyal customers become advocates who help drive referrals and retention
If your customer churns due to dissatisfaction and then purchases your competitor’s product, you may be losing more than just one customer. If your customer had become an advocate, they could help influence other customers in their networks to purchase your software. They could even influence their partners, who in turn could influence their customers.
As a partnership leader, you can help create value for your customers by:
- Developing integrations that your customers want and/or need to drive more value from your product. Work with your customer success managers (CSMs) to gather customer feedback and your tech partners to validate use cases.
- Establishing agency and other channel partners to help guide customers in your product.
- Speaking with tech and agency partners about new customers who would benefit from specific integrations or joint solutions. Your parters can help educate your customers about similar customers who have seen success from your integrations or joint solutions.
- Developing webinars, events, and more to help enable your customers about new features, integrations, and advanced use cases.
You can also help create customer advocacy and a positive ripple effect for new customer acquisition and retention by:
- Identifying beta testers and early adopters of new integrations using Crossbeam and by validating which customers are the best fit for your integrations with your CSMs.
- Gathering value statements from beta testers and early adopters and generating reviews on sites like G2.
- Developing partner case studies with customers using your integrations.
- Inviting customers to participate in co-hosted podcasts, webinars, and events with partners.
- Looking to your customers as potential tech and channel partners.
Benefit #3: A high NRR is a positive signal for growth
Venture Capital (VC) firms see NRR as an indicator of customer satisfaction and whether a company is able to maintain and grow its high-value customers. While some churn is inevitable, if you are losing high-value accounts, it may be a sign of deeper issues within the company.
Gathering customer feedback and investing in the experience, features, and integrations that your customers want can help increase the amount of value your customers get from your product. This can influence not only retention but also upsells and expansions. If your customers grow with you, it means you’re investing your efforts in the right places.
Or as you adjust your pricing and packaging to better reflect your product’s value, your customers give a rhetorical nod and agree to pay you more. ChartMogul reports that the higher your average revenue per account (ARPA) is, the lower your churn rate is. When your customers are willing to pay more for your product, they’re also less willing to churn.
In times of a market downturn when it’s critical to spend less, growing your existing customer accounts is more cost-effective and directly contributes to a lower burn multiple.
Additionally, as partnership teams invested more heavily in 2023 in “partner-sourced leads” with a high likelihood of closing, these leads become future high-growth customer accounts. Look to these accounts for cross-sell, upsell, and expansion opportunities.
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Resources you might like:
- Want to improve activation rates? It’s time to co-onboard with partners
- How to learn your customer’s tech stack and increase integration adoption by 17%
- How to calculate your tech ecosystem’s impact on churn (and get your entire team driving adoption)
- 2 ways partner data can improve your product strategy (and improve retention)
Ready to boost your net revenue retention? Book your free, personalized ELG Strategy Call and start driving growth with confidence.
