All You Need to Know About Gross Revenue Retention (GRR)

Are you tired of the churn-and-burn dance with your customers? It’s time to recalibrate your business performance with Gross Revenue Retention (GRR). This article delves into this crucial customer success KPI and outlines how it can drive sustainable growth, even amidst today’s growing challenges.

What is Gross Revenue Retention (GRR)?

The gross revenue retention rate measures how much revenue is retained during a specific period minus revenue lost due to churn, downgradings, or cancellations. Upgrades and expansions are not taken into account. As a result, this metric is solely concerned with retaining existing customers and ensuring they continue to use the product or service. 

Revenue retention is a crucial financial metric for businesses operating on a recurring revenue model, such as a subscription-based service. A high gross revenue retention rate signals a loyal customer base and effective retention efforts on the part of the business. Measuring revenue retention can help identify areas for improvement, like reducing customer churn or increasing customer lifetime value (CLV).

Why is GRR an Important Metric to Track?

Gross revenue retention points to the stability and predictability of a business’s revenue without factoring in growth from upsells or upgrades. By measuring gross revenue retention, businesses can understand the proportion of their total revenue from existing customers and their loyalty to the product or service. 

Related: 12 Customer Success KPIs That Matter in 2024

GRR vs NRR (Net Revenue Rate)

NRR covers retention and expansion aspects, while GRR focuses solely on retention.

Net Revenue Retention (NRR) measures your capacity to retain and grow your customer base. It’s calculated by subtracting revenue lost from churn (such as contract expirations, cancellations, or downgrades) from the total revenue generated from customers, including expansions. NRR can exceed 100% if the company retains most of its customers and has grown its customer revenue from expansions or upsells. 

GRR reflects your capacity to retain customers at their current service level. Unlike NRR, GRR doesn’t include expansion revenue, so the highest the metric can be is 100%.

How to Calculate Gross Revenue Retention?

It’s crucial to emphasize that only recurring revenues are factored into this calculation. One-time sales, such as on-demand services or single purchases, should not be considered when calculating GRR.

The formula goes as follows:

To calculate the GRR rate for a given month:

1. Determine the monthly recurring revenue at the start of the month
2. Determine the revenue lost during that month due to cancellations or downgrades.
3. Subtract the amount lost (step 2) from the MRR at the start of the period (step 1)
4. Divide the number from step 3 by the MRR amount from step 1
5. Multiply the number from step 4 by 100 to get the gross revenue retention rate percentage. 

Let’s look at an example:

Let’s say that you start January with $100,000 in MRR. Throughout January, you lose $15,000 of recurring revenue because one customer cancels their subscription ($10,000 a month) and another downgrades their subscription from $10,000 to $5,000 a month, for a total loss of $15,000 monthly recurring revenue. 

The calculation would be ($100,000 – $15,000)/$100,000 = .85 x 100 = 85% GRR for January. 

Generally, a favorable GRR rate should exceed 80%, while anything below 65% suggests potential issues requiring attention.

Factors Influencing Gross Revenue Retention

As businesses aim to boost their GRR, there are several factors they must address:

• Product Value and ROI – Businesses should consistently aim to innovate and create new features. Besides boosting sales, this fosters long-term engagement with the brand among existing customers.
• Market Positioning and Branding – Build a robust brand identity. This may entail crafting engaging content like blogs, videos, and podcasts to showcase your offerings and provide valuable insights on hot topics.
• Pricing Strategies – The same applies to pricing and subscription plans. Offering discounted pricing plans to the right segments or customers at risk of churning can significantly boost your GRR.
• Customer Success Support Quality – Businesses with effective customer success and support strategies view customers as revenue generators rather than cost centers. A mindset shift is required.

Related: All You Need to Know About Customer Retention Management

Best Practices to Improve Gross Revenue Retention (GRR)?

Here are some surefire ways to boost your GRR in 2024 and beyond:

1. Enhance Customer Satisfaction

Earn customer loyalty through relationship building, sentiment tracking, value realization, and creating consistent experiences. Typically, businesses should allocate 5%–15% of their revenue to Customer Success and use the latest AI-powered tools to be on top of things. You simply can’t manually analyze millions of emails, chats, and call transcriptions accurately in real-time.

2. Create and Communicate Value to Customers

QBRs play a significant role in improving GRR performance and can double the likelihood of renewals. Businesses must effectively communicate tangible and intangible benefits to ensure customers perceive maximum value from their investment. Additional incentives like loyalty programs or special discounts further encourage engagement and bolster retention rates. 

3. Foster Strong Customer Relationships

Multi-threading is vital for customer retention. Achieving stakeholder multi-threading involves tracking relationship changes in real time and understanding how sticky the account is. By staying informed about account activities and cultivating new champions within your accounts, you unlock growth and expansion opportunities while boosting brand advocacy. This needs to be done on an ongoing basis.

4. Obsess Over Onboarding

For subscription-centric businesses like SaaS companies, the initial impression is crucial. A poor onboarding experience significantly increases the customer’s likelihood of churning. During this phase, it’s essential to identify the customer’s priorities, set clear expectations, and measure success to speed up the time to the initial value. Allow the customer to experience quick wins.

5. Invest in Churn Analysis

No business is immune to churn. Understanding the drivers behind customer churn can lead to changes that improve retention and pinpoint high-value customers at risk of leaving. It reveals crucial indicators of why customers leave, empowering teams to craft targeted retention strategies. With acquisition costs on the rise, prioritizing churn reduction is paramount. Embrace churn analysis to stay ahead.

6. Analyze Customer Segments

Not every customer is the same. Businesses should analyze distinct customer segments separately to tailor products and services to each segment’s unique preferences. This ensures the delivery of relevant solutions while maintaining a competitive edge. Additionally, fine-tuning personalized playbooks and strategies to specific customer use cases can further enhance retention efforts.

7. Leverage Data Analytics for Predictive Insights

Customer intelligence is becoming a real game-changer in today’s landscape. Data points such as shifts in communication frequency and sentiment across email, chat, in-person meetings, and more are just too complex to manage manually, let alone analyze in real-time to generate actionable insights and detect growth opportunities. That’s why harnessing the power of AI is crucial.

Automatically getting access to predictive insights can help you elevate your GRR and fine-tune your CS strategy. Think sentiment scores, engagement scores, response time scores, open item scores, and more on a centralized dashboard.

Don’t take our word for it. Get a free demo of the Staircase AI platform to see how AI can help you improve customer retention and GRR.