CSaaS, zBlog
Is Your NRR Keeping Pace with Industry Benchmarks?
atif | Updated: December 5, 2023
Introduction
Net Revenue Retention (NRR) rate has become one of the most critical performance metrics for benchmarking SaaS success. NRR measures your ability as a SaaS business to retain existing customers while expanding its recurring revenue over time. However, with NRR benchmarks continuously rising across the industry, an important question emerges – is your NRR competitive compared to rivals in today’s market?
Recent SaaS industry reports have revealed escalating standards when it comes to NRR performance:
The Gold Standard of NRR Keeps Rising
The median NRR rate for SaaS companies as recently as 2020 was 105-115%, based on findings from both the KeyBanc SaaS Survey and the Compass Working Capital Retention Report. This indicated the average SaaS business was retaining over 100% of existing customer revenue while still growing per customer revenue by 5-15% year-over-year – the definition of strong retention and expansion.
However, according to McKinsey’s latest Rule of 40 analysis, this median benchmark is now outdated. Their research shows top-quartile SaaS businesses today have blown past that, with benchmark NRR rates exceeding 130-135%. The premier SaaS players within the industry are expanding recurring revenue from their existing customer base by over 30% annually.
In comparison, the SaaS companies in the bottom 25 percentile now demonstrate NRR rates below 98%. These struggling businesses are fighting simply to maintain their existing client revenue levels amid tougher competition—forget about growth.
As the SaaS model continues maturing within the broader software industry, benchmarks for customer success metrics such as adoption and retention have risen considerably across short time frames. Loyalty can no longer be taken for granted in an increasingly crowded subscription marketplace.
Top 25% NRR Rates Now Exceed 130%
So what do these trends mean for assessing competitiveness? SaaS businesses today that are sustaining an NRR rate above 130% are outpacing over 75% of rival offerings in the market. They have invested heavily in customer success programs, value selling, and account expansion teams to drive best-in-class results well above average.
SaaS companies with NRR still stuck at or below 100% are finding themselves rapidly falling behind as the market shifts to higher standards. While an NRR rate that low may have seemed moderately healthy only a few years ago, it now indicates major issues with customer churn and retention efforts. Without urgent improvements that expand lifetime customer value, these bottom-tier players will struggle to survive in any subscription business.
The Evolving Gold Standard
For fast-growing SaaS companies playing to win, benchmark NRR rates between 120-135% should be the new gold standard target to outperform industry peers. Leaders must make exceptional customer retention and per-account expansion a strategic priority to continually hit this evolving benchmark.
While software companies fixated solely on new customer acquisition in the past could still succeed, the subscription economy dictates that maximizing customer lifetime value and compounding growth from your installed base is now mission-critical.
Benchmarks are often used as Goalposts Shift
In any rapidly transforming, competitive landscape, regular benchmarking assessments and market data updates are vital. What seemed like leading retention and expansion performance last year could now mean you are quickly falling behind today’s rivals excelling at customer lifetime value best practices.
Forward-looking SaaS leaders must incorporate the latest NRR competitive intelligence and recalibrate account management strategies accordingly. Rather than yesterday’s static benchmarks, your NRR rate should now be viewed as a North Star guiding your whole organization’s customer-centric alignment.
By comparing your SaaS company’s NRR performance frequently to the market’s rising gold standards, you ensure crucial visibility into whether your customer success programs are keeping pace. In parallel, your product team receives data-driven insights on where innovation should prioritize new retention and expansion capabilities.
While market competition and customer expectations will continue rapidly evolving in the coming years, your NRR benchmarking assessments position your SaaS business to not just survive but to expand lifetime value and thrive.
Conclusion
In the fast-evolving realm of SaaS, Net Revenue Retention (NRR) has become a dynamic metric, with benchmarks soaring to 130-135% for top performers. Falling below 100% signals challenges in retention efforts, emphasizing the need for swift improvements.
Adapting to this shift, Trantor emerges as your strategic ally in enabling Customer Success for SaaS. With a track record in customer success management, we empower your business to not just keep pace but excel in the competitive landscape. Our expertise ensures you meet and exceed evolving NRR benchmarks, fostering loyalty, and driving sustained growth.
As you aim to thrive in the subscription economy, let Trantor be your partner in ensuring customer success and improving NRR.
