The same goes for businesses or blockchain and web3 startups, revenue retention is a crucial statistic because it provides information about the profitability of the whole company. It’s a win-win situation when you have a high revenue retention rate—happy consumers and interested investors. Gross revenue retention and net revenue retention are the two different types of revenue retention. We shall emphasize gross revenue retention in this piece. We will discover how to determine this metric’s value and how to relate it to your company.
What is Gross Revenue Retention?
Gross Revenue Retention is a company’s capacity to hold onto its current clientele. When a business keeps its clients, it generates money. In other words, a company’s gross revenue retention is the proportion of clients it is able to keep at the current price point or contract value.
Gross Revenue Retention, often known as the gross renewal rate, is the indicator of recurrent income from current clients. It is determined by deducting the entire value of contracts or subscriptions that were up for renewal at the beginning of the period from the value of those contracts or subscriptions that were renewed at the conclusion of the period.
What is a good GRR?
The GRR should be as close to 100% as possible.
However, it also depends on the size of the customer. SMBs are more likely to experience higher turnover (and hence poorer retention rates).
The Importance of Gross Revenue Retention
There are several reasons why GRR is important.
- Your GRR provides information regarding the long-term health of your brand. This makes it an essential statistic for investors who may be considering investing in your business.
- The success of your churn optimization strategies can be determined by looking at your long-term standing.
- The GRR, when combined with the net revenue retention, provides information on how frequently clients transition from the acquisition stage of your sales funnel to the retention stage.
Without assuming growth via upsells or upgrades, gross revenue retention reveals how steady (and predictable) the company’s revenue is.
Low gross revenue retention may indicate one or more of the following issues with the company’s health:
Unsolved problem: If you’re not solving a significant enough issue for people to continue paying for the answer, people won’t stick around.
It’s a frustrating experience: Poor consumer satisfaction with the goods or services might result in churn.
Customers aren’t using the product frequently enough: If users only log in once a month, you’re not fostering loyalty or trust.
However, our gross revenue retention does not take into consideration acquisitions or expansions. It just considers where we started and how much we lost.
How to Calculate Gross Revenue Retention?
The formula for the Gross Revenue Retention
GRR = [(Recurring revenue at the beginning-Amount lost due to churn-Amount lost due to downgrade)/Recurring revenue at the beginning] x 100
The following information is required to calculate the gross revenue retention rate:
- Revenue at the beginning of the period
- Amount lost due to churn
- Amount lost due to downgrades
To use this formula, multiply your monthly recurring revenue from customers who renewed at the end of the month by your monthly recurring revenue at the beginning of the month. And then deduct any lost revenue because the customers stopped buying from you, switched to a lower-priced product, or generally purchased less from you. To convert the outcome to a percentage, multiply the value by 100.
A business has 200 customers who each pay $1500 per month.
The recurring revenue at the beginning is : 200 X $1500 = $30000
Three clients downgraded by $500 apiece, and two customers canceled within the month.
Thus, the gross revenue retention is:
GRR = (200x$1500) – (2x $1500) – (3x$500)(200x$1500)= 98.5%
Your company’s gross retention rate is at 98.5%.
How to Improve Gross Revenue Retention?
The most effective methods to increase gross revenue retention center on retaining clients and preventing churn and contractions.
- Improve the overall experience.
- Build trust.
- Add more integrations.
How to Connect Gross Revenue Retention to Your Company?
Any company model can be used to calculate gross revenue retention. You may want to attract more investors when your business is expanding. The GRR is the one important number that investors pay attention to because it gauges your company’s long-term viability.
You’ll find or come up with new insights relevant to your plan when you begin constant monitoring of your GRR. Of course, it will be beneficial if you fully comprehend how your GRR relates to a larger industry. Here are the standards for a solid gross revenue retention rate to help you decide what goal to set:
- Over the entire software, the median GRR is over 90%.
- A respectable GRR is 80 percent for those selling to small and medium-sized firms.
- A good GRR for Enterprise is 90 percent.
Gross revenue retention (GRR) is one of the key metrics you and your investors need. You must monitor if it increases or decreases. But keep in mind that you also need to measure a lot of other indicators. It can help you determine what works and what doesn’t work for your business. The ultimate goal is that these retention metrics will help you improve revenue retention.
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