NRR vs. GRR: Which is the Better Indicator of Growth?

Let's talk growth, baby! 🚀 When it comes to measuring the success of a subscription business, there are two metrics that often steal the show: Net Revenue Retention (NRR) and Gross Revenue Retention (GRR). But which one is the real MVP? Let's break it down.

Understanding NRR and GRR

First things first, let's get on the same page.

• Net Revenue Retention (NRR): This metric measures the percentage of revenue retained from existing customers over a specific period. It accounts for both expansion revenue (upsells, cross-sells) and contraction revenue (downgrades, churn). The formula for NRR is:

• NRR = (Recurring Revenue at the End of Period - Revenue Lost Due to Churn + Expansion Revenue) / Recurring Revenue at the Beginning of Period

• Gross Revenue Retention (GRR): This metric measures the percentage of revenue retained from existing customers over a specific period without considering expansion or contraction. It's a simpler measure of customer retention. The formula for GRR is:

• GRR = (Recurring Revenue at the End of Period) / Recurring Revenue at the Beginning of Period

NRR: The Full Picture

NRR paints a more complete picture of your business's growth. It shows how well you're not only retaining customers but also expanding your relationship with them. A high NRR indicates that you're not only keeping customers happy but also increasing their value over time.

Why NRR is a Rockstar?

• Holistic view of growth: Considers both customer retention and expansion.

• Actionable insights: Helps identify areas for improvement in customer retention and upselling.

• Investor appeal: NRR is a key metric for investors looking for sustainable growth.

GRR: The Baseline

While GRR might seem simpler, it still provides valuable insights. It's a good starting point for understanding your customer retention rate. If your GRR is declining, it's a red flag that needs immediate attention.

When to use GRR?

• Early-stage businesses: When you're primarily focused on customer acquisition and retention.

• Benchmarking: To compare your performance with industry standards.

• Identifying churn issues: GRR can help pinpoint when customer churn is becoming a problem.

Why NRR and GRR should matter for CSMs?

For CSMs, both NRR and GRR are crucial metrics. They provide insights into the health of your customer base and help you focus your efforts.

• NRR: Helps CSMs identify opportunities for expansion, prioritize at-risk accounts, and measure the impact of their upselling and cross-selling efforts.

• GRR: Helps CSMs focus on retention strategies, identify early warning signs of churn, and improve customer satisfaction.

By tracking and analyzing both metrics, CSMs can develop targeted strategies to increase customer lifetime value and drive overall business growth.

Which is the Better Metric?

The truth is, you need both. NRR gives you a comprehensive view of growth, while GRR provides a baseline for measuring customer retention. By analyzing both metrics together, you can gain a deeper understanding of your business's performance.

Remember: Both NRR and GRR are important, but they should be part of a broader set of metrics that help you measure customer success. By tracking these metrics alongside other key indicators like customer lifetime value (CLTV) and customer churn, you'll have a clearer picture of your business's health.

So, which metric is king? It depends on your specific goals and the stage of your business. But one thing's for sure: both NRR and GRR are essential tools for driving growth.

What's your take on NRR vs. GRR? Share your thoughts and experiences in the comments below!