Revenue Retention Rate measures how much recurring revenue you retain from existing customers over a period of time, after accounting for churn and upgrades/downgrades.
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Revenue retention rate, also known as net revenue retention rate (NRR), is a financial metric that measures a company’s ability to retain and grow its revenue from existing customers over a specific period. It also shows how much the business is generating in additional revenue from upsells, cross-sells, expansions, and renewals within its customer base. The revenue retention rate is a crucial metric for subscription-based businesses, SaaS companies, and other businesses with recurring revenue models.
The revenue retention rate is typically calculated by taking the revenue generated from existing customers at the end of a given period (including upsells, cross-sells, and expansions) and dividing it by the revenue generated from the same group at the beginning of the period. Then, we multiply the figure by 100 to express it as a percentage.
Here’s an exact formula you can follow:
Revenue Retention Rate = ((Ending Revenue – Expansion Revenue) / Beginning Revenue) * 100
Let’s break down these elements in the formula:
Suppose you have a SaaS company that offers a subscription service. At the beginning of the quarter, you had 100 customers generating $100,000 in total revenue. During the quarter, you had expansion revenue of $20,000 from upsells and cross-sells. At the end of the quarter, you had 90 customers generating $110,000 in total revenue. Using the formula, we calculate that the revenue retention rate for this company is 90%.
Industry-specific factors, business models, customer dynamics, and growth stages all have a huge impact on when determining a good revenue retention rate for a particular company. A commonly mentioned threshold for a strong revenue retention rate is somewhere above 100%, with the industry playing one of the biggest factors.
For example, SaaS companies typically aim for revenue retention rates in the range of 100% to 130%. This range indicates that the company is not only retaining existing customers, but also generating additional revenue from upsells, cross-sells, and expansions. On the other hand, professional service firms like consulting or marketing agencies may have a rate ranging from 90% to 110%.
Given the nature of their business and potential project-based work, these companies strive to retain clients and secure additional revenue through project expansions or ongoing contracts.
A high revenue retention rate indicates customer satisfaction, loyalty, and the ability to generate recurring revenue, and it’s why most businesses prioritize this metric. To improve your retention rate, you need to come up with strategies that focus on strengthening existing customer relationships and delivering ongoing value.
We spoke to hundreds of industry leaders on the topic and shortlisted some of their go-to strategies:
More resources to help you improve:
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Net revenue retention matters because it directly impacts the financial health and growth of a business. It provides insight into its ability to retain and expand revenue from existing customers.
Yes, net revenue retention and net dollar retention refer to the same concept. Both terms are used interchangeably to describe the financial metric that measures a company’s ability to retain and grow revenue from existing customers.
The main difference between net and gross revenue retention is in the way they account for revenue generated from existing customers.
Net revenue retention factors in expansion revenue, which includes upsells, cross-sells, and expansions, while excluding any revenue lost due to churn.
On the other hand, gross revenue retention solely considers the total revenue generated from existing customers, including both recurring revenue and expansion revenue, without subtracting revenue lost from churn.
Churned Recurring Revenue measures the revenue lost due to customers cancelling their subscriptions or not renewing. It helps track the impact of churn on your business.
The New Customers by Plan ID metric tracks the number of new customers who have subscribed to a particular plan. It helps identify which plans are popular among new customers and can aid in optimizing marketing strategies for future growth.
The Reactivated Recurring Revenue metric measures the revenue generated from previously churned customers who have come back to a subscription-based business. It helps track the effectiveness of a company's re-engagement efforts.
Churned Recurring Revenue Delinquent by Plan ID measures the lost revenue due to cancelled subscriptions that were not paid on time, broken down by different subscription plan types.
Growth Rate by Plan ID measures the percentage change in revenue for a specific subscription plan over a selected time period, indicating the plan's overall success or challenges in driving growth.
The Customers Churn Delinquent Rate metric measures the percentage of customers who have churned and were also delinquent on their payment.
Revenue Churn Delinquent Rate measures the percentage of delinquent customers who are also responsible for revenue churn, indicating the impact of late payments on overall revenue for the business.
Revenue Churn Rate measures the amount of revenue lost from canceled or downgraded subscriptions over a given period of time.