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Editorial

Why Marketers Need to Obsess Over Net Revenue Retention

6 minute read
Latané Conant avatar
Net revenue retention (NRR) is a key indicator of a company’s health and future potential, and investors (and the markets) obsess over it.

If you were a fly on the wall in top tech investor meetings, you’d hear one acronym come up over and over again: NRR. Net revenue retention is a key indicator of a company’s health and future potential, and investors (and the markets) obsess over it.

So what is NRR, and why is everyone talking about it? NRR is a measure of revenue realized from existing customers, rather than from new business. Investors love a high NRR rate because:

  • It shows customers are so happy with the company that they stick around, continuing to spend (and spend more), and
  • It means that even if the company brings in zero new customers, they’ll increase their revenue year-over-year.

These are the signals that make investors want to back a company. In one survey of private equity firms and strategic buyers, the overwhelming majority stated that net retention is the most important metric when evaluating a company. And companies with an NRR rate of 130% or higher boast an enterprise value-to-revenue multiple of 21.9x, compared to an average of 8.8x for the SaaS industry in general.

There’s no denying companies with a high NRR rate turn heads. Just look at Snowflake. Before making waves with the biggest tech IPO in history, the company had a NRR rate of 158%

The lesson here is that just like investors, all of us in tech should be obsessed with NRR. We should care just as much about our current customers’ happiness as we do about bringing in net new logos. For too long, SaaS economics have meant marketing pours all its resources into customer acquisition, not retention. But the current focus on NRR makes it clear: it’s time to get proactive about investing in customer marketing.

Reenvisioning Customer Marketing

If you ask most customer support service folks what marketing does for them, you’ll probably get a heavy sigh and an eye roll. That’s because in a lot of organizations, customer marketing has been an afterthought. It’s maybe staffed with one or two people, and they’re focused on three things: net promoter score (NPS), references, and case studies.

Don’t get me wrong: Those are all important things. But they don’t do anything to ensure our customers are adopting our product and ultimately getting value.

As marketers, we need to raise our hands and say if NRR is a priority, we’re going to double down on customer marketing. And that means more than doing the bare minimum. It’s about looking at data, identifying patterns, dissecting those patterns and understanding our customers’ journey with us. It’s about running account-based marketing programs for our existing customer base with the same degree of thought and planning as we use for new accounts. It’s about making sure our customers eat first — and prioritizing them in everything we do.

Related Article: Does Your Content Marketing Stop After Purchase?

Design Programs That Keep People Coming Back

Customer programs are essential to adoption, engagement and enthusiasm from current customers — and therefore to NRR. It’s important to invest heavily in customer programs (think networking groups for different user personas, a customer advisory board, user groups, etc.).

But creating the programs isn’t the end of the story. You also need to promote them extensively and make them undeniably valuable (and fun) so people want to participate.

Rather than measuring customer marketing’s success based on how many references they can provide or how good their case studies are, consider setting goals around customer participation in these programs. It’s a way to stay focused on engaging, educating and delighting customers throughout their relationship with your company — an effort that too often stops as soon as the ink has dried on the contract.

Align With Customer Success on Use Cases

The heads of marketing and customer success should be shoulder to shoulder in thinking about how to drive customer success. That starts with understanding what use cases for each persona make a customer truly successful. You can then identify which KPIs are critical to measure to see if a customer is getting value from your product.

Then customer success, marketing and product can all work together to make sure those critical use cases are being adopted.

Learning Opportunities

Related Article: How AI-Based Marketing Can Improve Customer Retention 

Measure Account Health

There’s nothing more frustrating than hearing from a customer that they’re not getting the value out of your product that they expected only to find out that they haven’t engaged in any of the programs you offer to help them get value.

We addressed this at my company with a digital ad campaign that targeted current customers. The ads feature quotes from some of our most successful customers highlighting the value they’re getting from our products. The ads drove to a landing page with a CTA inviting the customer to request an account health scorecard. This scorecard grades them on how their team is engaging to get the most value out of the product. Are they implementing all the use cases they could be? Are they attending the monthly user group? Is their CMO part of one of our CMO communities?

These account health scorecards highlight the need for mutual accountability. And they’ve been so successful at driving engagement that the customer success team has integrated them into their quarterly business reviews.

Engage All the Right People

Large business purchases aren’t made by individuals. They’re made by buying teams of six to 10 decision-makers. That dynamic doesn’t change when it comes to renewals and upsells. Yet in a lot of customer relationships, the customer success team is limited to contact with one or two people. That’s bad for the customer success team — and for the customer.

Just as marketing helps sales teams multithread prospect accounts, we can help customer success understand who’s engaged in each account and who isn’t. Then we work to draw the right people out, get them engaged with our programs, and ultimately create more champions within the company.

Related Article: The Shift Is Permanent: How the Last 18 Months Shaped 2022 B2B Marketing Plans

Marketing + Customer Success = Better NRR

Net revenue retention is a metric we all need to get behind — and that means doubling down on the efforts we pour into keeping our current customers engaged and happy with us. Just as marketing partners with the sales team to bring in new accounts, we have a huge opportunity to partner with customer success to take care of our current accounts.

Because when our customers are happy, they keep our business thriving. And that’s the key to an NRR rate that investors and markets want to get behind.

About the author

Latané Conant

Latane Conant, Chief Market Officer at 6sense, isn’t your typical CMO. One lively conversation with her and you’ll quickly pick that up.