Gross revenue retention: What it means for SaaS success

In 2024, SaaS companies saw a significant shift in how they approach growth. With customer acquisition becoming more challenging, retention became the key driver for success.

That means understanding and optimizing your gross revenue retention (GRR) is more critical than ever. This article breaks down everything you need to know about GRR, from its definition and calculation to the factors that influence it.

You'll also learn:

• Why GRR offers a clearer picture of customer retention than net revenue retention
• Common mistakes SaaS companies make with GRR and how to avoid them
• Simple methods to boost your GRR
• How Orb helps you maximize GRR and achieve sustainable growth

Let’s begin by explaining what GRR means in SaaS.

What is gross revenue retention in SaaS?

Gross revenue retention measures the percentage of recurring revenue retained from existing customers over a specific period.

Think of it as your baseline — how well you hold onto the revenue you're already generating. GRR isn't like other metrics that may include upsells or new customer acquisition. It focuses solely on recurring subscription revenue.

This metric gives you a clear picture of how well you're keeping your current customers happy and subscribed.

Why is gross revenue retention so important for SaaS companies?

In the world of subscription-based services, consistent recurring revenue is king. Gross revenue retention provides key insights into customer churn and the overall health of your customer base.

A high GRR indicates strong, happy, and loyal users, which means predictable revenue and sustainable growth. It also shows potential investors that your company has a solid foundation and is built for long-term success.

Note: We’ll go in-depth about GRR’s importance in SaaS in a later section.

Gross retention vs. Net retention: Which one should you focus on?

GRR and net revenue retention (NRR) both offer valuable insights into a SaaS company's performance. However, they tell different parts of the story:

• GRR: It measures the percentage of recurring revenue retained from existing customers over a given period. You’re excluding upsells, cross-sells, or expansions.
  
  GRR focuses purely on retention and highlights how well a company holds onto its core customer base and revenue. It’s a key indicator of customer satisfaction and the sustainability of recurring revenue.
• NRR: It includes all revenue retained from existing customers. You factor in upsells, expansions, and upgrades while subtracting revenue lost to churn or downgrades.
  
  NRR provides a broader view of growth potential and overall revenue performance from the same customer base.

Takeaway: GRR isolates your ability to retain core recurring revenue without the influence of upsells. So, GRR is a more accurate measure of true customer retention and product stickiness.

Gross revenue retention formula: Example calculation

Calculating gross revenue retention is actually pretty straightforward. It boils down to a simple formula:

GRR = (Starting Recurring Revenue - Revenue Lost from Existing Customers) / Starting Recurring Revenue × 100

Example:

Imagine your SaaS company starts with $100,000 in monthly recurring revenue (MRR). Over the month, some customers churn and others downgrade their subscriptions, leading to a total revenue loss of $5,000.

To calculate your GRR, you would plug those numbers into the formula:

GRR = (($100,000 - $5,000) / $100,000) × 100 = 95%

This result means your business retains 95% of its recurring revenue from existing customers.

Now, you might be wondering, "What's a good GRR?" While it varies by industry and specific business factors, a typical benchmark for SaaS businesses falls between 85% and 90%.

The closer that your GRR is to 100%, the better. A high percentage indicates a high level of customer satisfaction and retention.

What factors influence gross revenue retention?

GRR is a reflection of several key aspects of your SaaS business. Here are some of the biggest influencers:

• Customer satisfaction: Happy customers are more likely to stick around. Measuring and improving customer satisfaction is paramount for boosting GRR.
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• Product quality: Your product is the heart of your SaaS business. A high-quality product that solves customer pain points is crucial for retaining customers and, in turn, increasing GRR.
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• Competitive landscape: Your GRR can be influenced by the alternatives available to your customers. Keeping a close eye on your competitors and innovating to stay ahead of the curve is vital.
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• Customer support: Exceptional customer support can make a big difference in customer retention. When customers feel heard and supported, they're more likely to remain loyal to your brand.
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• Pricing strategy: GRR doesn't directly factor in upsells, but your pricing strategy can still influence churn. Make sure your pricing tiers align with the value you provide. Customers should always feel they're getting a fair deal.

A closer look at why gross revenue retention matters for SaaS businesses

Here are three key reasons why GRR deserves a closer look in SaaS particularly:

1. Predictable recurring revenue: SaaS businesses thrive on recurring revenue. Gross revenue retention helps maintain a steady and predictable revenue base. This predictability is essential for accurate financial forecasting and planning.
   
   It provides a clear picture of your core revenue stream. It's isolated from the fluctuations of new customer acquisition or expansion revenue.
2. Spotting churn issues: Think of GRR as an early warning system for customer churn. A low GRR signals potential problems with customer satisfaction or product-market fit.
   
   Is your product meeting customer needs? Are there gaps in your onboarding process? Is your customer support up to par? GRR helps you pinpoint these issues and take corrective action before churn becomes a significant problem.
3. Benchmarking customer success performance: GRR is key for assessing your customer success efforts. It provides insights into how well they're retaining revenue and building customer relationships.
   
   GRR can also inform decisions about account management strategies and resource allocation.

Remember: By tracking GRR over time, you can measure the impact of your efforts. As a result, you can make sure your customer success team is firing on all cylinders.

Simple methods to improve gross revenue retention

Here are a few simple methods to boost your GRR.

Method 1: Improve onboarding and product adoption

The faster your customers see value in your product, the less likely they are to churn. A smooth onboarding process is crucial for setting the stage for long-term success. SaaS companies can improve onboarding with tutorials, documentation, and responsive support.

By addressing any initial roadblocks, customers can quickly see the benefits of your product. This approach reduces the likelihood of early-stage churn, contributing to a higher GRR.

Method 2: Proactive customer support and engagement

Regularly check in with your customers, especially those who may be showing signs of frustration. Automated check-ins, account health scoring, and personalized outreach can go a long way.

Proactive engagement and top-notch support show you value their business and are committed to their success. You want to build trust and loyalty, which are crucial for improving GRR as well.

Method 3: Regular product value communication

Sometimes, users churn simply because they forget the value your product provides. It's important to consistently remind them of the benefits they're getting. Usage reports and milestone celebrations are good ways to showcase the ongoing value your product delivers.

By focusing on the value proposition, you reinforce the reasons why customers choose your product in the first place. This way, you're also increasing their likelihood of staying on board.

Method 4: Offering customizable pricing options

Offering customizable pricing options can help with churn by matching costs with customer needs. Pricing models, usage-based tiers, and add-ons let users tailor their subscriptions to their budgets too.

Common mistakes SaaS companies make with gross revenue retention

Even with the best intentions, SaaS companies sometimes stumble when it comes to gross revenue retention. Here are a few common pitfalls and how to avoid them:

Problem 1: Overlooking small churned accounts

It's easy to get caught up in managing your biggest accounts. However, neglecting smaller churned accounts can be a costly mistake. Beware, as the cumulative impact of losing lots of small users can drag down your GRR.

Solution: Implement a system for tracking churn across all accounts, regardless of size. Think automated alerts, segmentation, or using tools that give you a complete view of your customer base.

By monitoring churn across the board, you can identify patterns and address issues before they escalate.

Problem 2: Relying only on NRR

NRR is a valuable metric, but relying just on it can give you a false sense of security. Since NRR includes expansion revenue, it can mask underlying churn problems.

A high NRR might look great, but if it's primarily driven by upsells while your core customer base is eroding, your long-term growth is at risk.

Solution: Always consider GRR in conjunction with NRR. Gross revenue retention provides a clearer picture of customer satisfaction. It's also a window into your ability to retain your existing revenue base.

If you track both metrics, you gain a better understanding of your retention performance and can spot areas for improvement.

Problem 3: Infrequent customer success reviews

Regular check-ins are key for spotting churn risks and addressing customer concerns. Irregular reviews lead to missed opportunities to strengthen customer relationships and prevent churn.

Solution: Implement a system for regular customer success reviews. Think of including automated reminders. You can also consider scheduled meetings or use user health scoring tools to prioritize at-risk accounts.

FAQs about gross revenue retention

What is a good gross revenue retention rate for SaaS?

Benchmarks can vary, but a GRR above 90% is generally considered excellent. It indicates strong customer retention and minimal revenue churn.

How can I improve gross revenue retention quickly?

Focus on delivering exceptional customer experiences. You should also be addressing concerns, and making sure your product consistently delivers value.

How often should SaaS companies measure gross revenue retention?

GRR should be monitored regularly. Ideally, this should be done on a monthly or quarterly basis to spot trends and potential issues.

What are common reasons for low gross revenue retention?

One of the main factors contributing to low GRR is poor onboarding experiences. There’s also bad customer support, lack of innovation, and unfavorable competitive pressures.

Can gross revenue retention be greater than 100%?

No, GRR cannot exceed 100%. It can’t because it focuses solely on retaining existing recurring revenue.

How Orb helps SaaS companies maximize gross revenue retention

We've explained what gross revenue retention is and why it's critical for SaaS success. Now, let's talk about how Orb can help you achieve outstanding GRR.

Orb is a done-for-you billing platform. It’s designed to help SaaS businesses with the tools and insights they need to cultivate lasting customer relationships. Here's how Orb can help you improve GRR:

• Reduce churn with accurate billing: Orb's robust usage tracking ensures accurate invoices. Orb helps minimize billing disputes and payment failures that can lead to unnecessary churn.
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• Spot at-risk users with reporting: Orb's financial reports provide key insights into user behavior. This data allows you to identify at-risk customers early on. Then, your customer success team can address their needs and prevent churn.
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• Tailor pricing for optimal customer value: Orb lets you easily change pricing and stay on top of all your pricing plans with plan versioning. Create customized pricing that aligns with your customers' specific needs and usage patterns.
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• Simplify billing for efficiency: Orb integrates with popular data warehouses and accounting software. We help automate your billing workflows and reduce manual errors. This advantage frees up your team to focus on high-value activities.
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• Gain a holistic view of your users: Orb provides a centralized platform for managing all aspects of your billing and customer data. This gives you a better understanding of your customers' journey.

Ready to maximize your gross revenue retention? Consult our flexible pricing options to find a plan that perfectly aligns with your needs and budget.