What is SaaS NRR and Why is it Important for SaaS Companies

SaaS NRR, or Software as a Service Net Revenue Retention, is a key metric for SaaS companies. It measures the percentage of revenue that a company is able to retain from its existing customer base over a given period of time. In other words, SaaS NRR helps SaaS companies understand the growth of their existing customer base, which is a critical factor in the overall growth and success of the business.

Why is SaaS NRR Important for SaaS Companies?

SaaS NRR is important for SaaS companies because it provides a clear picture of the growth of the company’s existing customer base. A high SaaS NRR indicates that the company is retaining its existing customers and growing its revenue from those customers. This is a positive sign for the company, as it means that its existing customer base is becoming more valuable over time.

SaaS NRR is also important because it provides a more complete picture of the company’s growth than other metrics like Monthly Recurring Revenue (MRR) growth or customer acquisition. While these metrics are important, they only tell part of the story. SaaS NRR helps SaaS companies understand the full picture of their growth, including both the revenue growth from new customers and the retention of existing customers.

How is NRR Calculated?

SaaS NRR is calculated by subtracting the amount of revenue lost from churned customers from the revenue gained from upsells and cross-sells to existing customers. This gives the net increase in revenue from the existing customer base over a given period of time. The SaaS NRR is then expressed as a percentage of the original revenue from the existing customer base.

For example, if a SaaS company had a revenue of $100,000 from its existing customer base and lost $10,000 in revenue from churned customers, but gained $20,000 in revenue from upsells and cross-sells, the SaaS NRR would be 20%.

An Example of NRR in Action

Let’s consider an example to illustrate the concept of SaaS NRR. Imagine a SaaS company that has 100 customers, each paying $100 per month for its services. The company experiences 10% churn each month, which means it loses 10 customers and the associated revenue of $1000. However, the company is also able to upsell its existing customers to higher-priced plans, which results in a 20% increase in revenue from existing customers. This means that the company’s revenue from existing customers increases from $10,000 to $12,000, even as it experiences customer churn.

In this example, the SaaS NRR would be 20%, as the company has retained $2000 in revenue from its existing customer base despite losing 10 customers and the associated revenue of $1000. This is a clear example of a positive SaaS NRR, as the company has grown its existing customer base and increased its revenue, even as it experiences some level of customer churn.

Conclusion

NRR is a key metric for SaaS companies, as it provides a comprehensive understanding of the growth of the company’s existing customer base. A high NRR indicates that the company is retaining its existing customers and growing its revenue from those customers, which is critical for the overall growth and success of the business. Understanding and monitoring NRR, in addition to metrics like MRR growth and customer acquisition, can give SaaS companies a full picture of their growth and help them make informed decisions about their business strategy moving forward.