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High NRR Can Mask a Lot of Problems

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Having high net revenue / dollar retention is the magic of SaaS.  If you have 120% NRR, you double in 5 years, even with no new customers!  Above that, and you really get into magical compounding growth.

But … high NRR can also mask issues.  I see this so often:

1. High NRR can mask mediocre growth in new logos and customers.  This is issue #1.  You need to be careful in a high NRR environment that customer count is still growing fast enough.  High NRR can hide it.  With 150% NRR, you can “hide” just 20%-30% or so new customer growth and it will be hard to see that slow growth in new customers in the revenue growth numbers.

2.  High NRR can mask logo churn.  I also see this, in high NRR environments, there isn’t enough talk about logo churn.  Losing a few $10k customers seems OK if you upsold $100k.  Again, the high NRR can mask the customer loses.  But your losing your future if you lose more customers than you need to.

3.  High NRR can mask a lot of mediocre customer success reps.  I know this is a bit controversial, but it’s true.  In low NRR environments, everyone can see the customer success folks that are underperforming.  LIke you can see it in sales.  But when the product organically has 120%+ NRR, everyone sort of gets a pass.

So just a few thoughts:

First, strive for new logo growth of at least 50% of your total revenue growth.  I.e., if you’re growing 100% a year, strive for at least 50% growth in new customers and revenue from new accounts.  Once the ratio starts to tilt past 2:1 of your new bookings from existing customers, you probably aren’t adding enough new customers.

Second, measure logo retention as often as your do NRR.  Align them and track them together.  Strive for 90% logo retention in general wherever you have 120%+ NRR.

Third, remember to segment your NRR and logo retention by deal size.  This will expose trends you don’t otherwise see, especially in your smaller customers.  And enforce greater accountability on whomever owns those accounts.

If you have 120%, even 130%+ NRR, that’s magic.  Do whatever it does to keep it and even drive it up further.

Just remember as founders, it can also mask a lot of issues.  Issues that will lead to slower growth than you’d otherwise have.  Own those ones, because otherwise, the team has too much on its hands to do it themselves.

A related post here:

Is GRR More Important Than NRR? Probably

Hidden issues image from here

Published on May 30, 2022

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  • Source: https://www.saastr.com/high-nrr-can-mask-a-lot-of-problems/

This Post was originally published on SaaStr

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