The overall revenue of your product among your customers.
About this metric
Net revenue retention (NRR) is a metric that measures the percentage of revenue that a company retains from its existing customers over a period of time. It is calculated by taking the total revenue from existing customers in a given period and subtracting the revenue from customers who churned (cancelled their subscriptions) or downgraded their subscriptions. The remaining revenue is then divided by the total revenue from existing customers in the previous period.
For example, if a company had $100,000 in revenue from existing customers in the previous month and $95,000 in revenue from existing customers in the current month, its NRR would be 95%. This means that the company retained 95% of its revenue from existing customers in the current month.
NRR is a key metric for product managers to track because it measures the success of a company's product in retaining customers. A high NRR indicates that a company is doing a good job of keeping its customers happy and engaged, which is essential for long-term growth.
How to calculate Net Revenue Retention
Where:
Ending MRR: The Monthly Recurring Revenue at the end of the period.
Expansion MRR: The additional MRR generated from existing customers due to upsells, cross-sells, or upgrades.
Churn MRR: The MRR lost due to customer cancellations or downgrades.
Starting MRR: The Monthly Recurring Revenue at the beginning of the period.
Significance for Product Managers
As a product manager, NRR provides you with essential insights into the health and performance of your product in the market and its impact on the company's revenue. Here's how you can leverage NRR to make informed decisions and drive product strategy:
Customer-Centric Focus: NRR highlights the impact of your product on customer satisfaction and retention. Monitoring churn rates and expansion opportunities can help you identify areas where your product excels and where it may need improvement.
Product Enhancements: By analyzing NRR trends, you can identify specific product features or functionalities that are driving expansion revenue. This information guides your decisions on prioritizing enhancements or new features that contribute to upselling and cross-selling opportunities.
Churn Mitigation: Understanding the reasons behind customer churn, whether it's related to usability, performance, or other factors, helps you address pain points and work on strategies to mitigate churn.
Pricing Strategy: NRR insights can inform your pricing strategy. If the NRR is consistently high, it might indicate that customers find value in your product, potentially justifying premium pricing. Conversely, a low NRR might prompt a reevaluation of pricing.
Forecasting and Goal Setting: NRR provides a clear picture of your product's revenue trajectory. This data is invaluable for setting realistic goals, forecasting future revenue, and aligning product development efforts with broader business objectives.
Product Lifecycle Management: NRR can help you understand how your product performs over different stages of its lifecycle. This insight can guide decisions about when to invest in new features, pivot, or retire the product.
In summary, Net Revenue Retention is a powerful metric that offers product managers actionable insights into customer satisfaction, retention, and revenue generation. By closely monitoring NRR trends and leveraging its implications, you can drive strategic decisions, enhance your product's value proposition, and contribute significantly to your company's growth and success.
