The concepts of “churn”, “retention” and “revenue” are paramount in any company, and they certainly are ever present in the mind and concern of any customer success team and of the sales departments.
That’s because the measure of these factors are foundational evidence as to whether your organization is set up for long term success, and whether your customers are happy with your products and services.
In the business of SaaS, churn, retention, and revenue are critical factors in measuring many other aspects of business, such as Annual Recurring Revenue (ARR), Monthly Recurring Revenue (MRR), and even Projected Growth Rate (PGR)
HOW DO YOU MEASURE THESE FACTORS?
These are the four major calculations for determining customer health, and they can be thought of in pairs of two, with each set containing a “positive” measurement, and a “negative” measurement. So one pair may measure churn as well as retention, which are opposite but complementary measurements:
CUSTOMER RETENTION RATE VS CUSTOMER CHURN RATE:
CUSTOMER RETENTION RATE (CRR) is the percentage of customers retained over a given period of time. Also referred to as “Logo” Retention.
CALCULATION: (1- CUSTOMERS CHURNED IN PERIOD / CUSTOMERS AT START OF PERIOD)
CUSTOMER CHURN RATE (CCR) is the percentage of customers that are lost (stopped buying) over a given period of time. Also referred to as “Logo Churn”
CALCULATION: (CUSTOMERS CHURNED IN PERIOD / CUSTOMERS AT THE START OF THE PERIOD)
GROSS REVENUE RETENTION RATE VS. NET REVENUE RETENTION RATE:
This calculation reflects the amount of recurring revenue (ARR, MRR) a company is able to retain for any given period. This metric is also referred to as DOLLAR REVENUE RETENTION (DRR)
GROSS REVENUE RETENTION RATE only considers the starting revenue minus any revenue lost through downsell or churn.
CALCULATION: (STARTING MRR – DOWNSELL – CHURN) / STARTING MRR
NET REVENUE RETENTION RATE considers the offsetting revenue from expansion (upsell, and or cross-sell). Some also refer to this metric as Dollar Revenue retention (DRR).
CALCULATION: ((STARTING MRR + EXPANSION – DOWNSELL – CHURN) / STARTING MRR
THE IMPORTANCE OF CROSS-REFERENCING METRICS
There are countless resources available to help you and your team measure churn, retention, and overall customer health. What is important is to select a specific set of customer success metrics that will help to guide your organization moving forward.
As a customer success leader, it’s important to work with your executive team and CMSs to select the most important churn and retention numbers for your organization and measure them continuously, using these metrics as a way to guide the future and measure the past.