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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To track Revenue Retention Rate using Databox, follow these steps:
Elevate decision-making, focused on the crucial Net Revenue Retention metric, it's a must-have for SaaS success. Real-time visualizations offer insights into key metrics like upgrades, downgrades, and churn.
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.
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 Upgraded Recurring Revenue metric measures the additional revenue generated by existing customers through upgrades or expansions of their subscription plans.
ARPU is the measure of monthly or annual revenue generated by a single customer. It helps to understand the overall performance of a subscription business by tracking revenue trends.
Churned Trialing Customers measures the number of trial users who cancelled their subscription before the end of the trial period.
Growth Rate is the percentage increase or decrease in revenue over a set time period, used to gauge the performance of a business and its ability to expand.
The Lifetime Value by Plan ID metric measures the total value a customer generates for a specific subscription plan over the entire duration of their relationship with your business.
The Revenue Retention Rate by Plan ID metric measures the percentage of recurring revenue a business retains from customers on a specific plan. It helps businesses understand how well they are retaining revenue from different customer segments.