Understanding the difference between gross retention and net retention is crucial for SaaS companies looking to accurately measure revenue metrics. While they may sound similar, gross and net retention provide unique insights into customer loyalty, expansion revenue, and overall business growth.
In this comprehensive guide, we’ll break down the key differences between gross retention and net retention, explain why both metrics matter, provide benchmark statistics, and give actionable tips for improving retention rates. Let’s dive in!
Defining Gross Retention
Gross revenue retention refers to the percentage of recurring revenue retained from existing customers over a specific time period. It focuses solely on measuring revenue from customers who continue their subscriptions without downgrading or churning.
The gross retention rate formula is
(Starting MRR – Downgrades & Churn MRR) / Starting MRR x 100
For example, if a SaaS company starts with $100,000 in MRR and experiences $5,000 in downgrades and $2,000 in churn losses, their gross retention rate would be:
($100,000 – $5,000 – $2,000) / $100,000 x 100 = 93%
A higher gross retention rate indicates the company is successfully retaining and renewing customers. Dropping gross retention means increased risk of revenue shrinkage from downgrades and churns.
Defining Net Retention
Net revenue retention measures the percentage of recurring revenue retained from existing customers while also factoring in expansion revenue from upgrades and cross-sells.
The net retention formula is:
(Starting MRR + Expansion MRR – Downgrades & Churn MRR) / Starting MRR x 100
Using the example above, if the company gains $8,000 in expansion revenue, their 104% net retention rate would be:
($100,000 + $8,000 – $5,000 – $2,000) / $100,000 x 100 = 104%
Net retention over 100% indicates expansion revenue has fully offset any downgrades and churn losses. High net retention means healthy recurring revenue growth from existing customers.
Key Differences Between Gross and Net Retention
While the terms sound alike, gross and net retention KPIs differ in the key ways:
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Gross retention ignores expansion revenue and focuses solely on downgrade and churn losses.
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Net retention factors in expansion revenue from upgrades and cross-sells.
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Gross retention provides a baseline for revenue stability.
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Net retention shows revenue growth from existing customers.
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Gross retention monitors risks of downgrades and churns.
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Net retention focuses on upsells and expansion opportunities.
Gross vs. Net Retention Benchmarks
Industry benchmarks help provide context for assessing your company’s retention rates. According to 2021 retention rate benchmarks:
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Median net revenue retention for public SaaS companies is 114%. For private companies, it ranges from 60% to 148%.
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Median gross revenue retention for private SaaS businesses is 88% to 90%.
Of course, optimal retention rates will vary across verticals and business models. Focus on tracking trends over time rather than chasing arbitrary targets. Prioritize improvement.
How to Improve Net Retention
Boosting net retention increases recurring revenue growth from your existing customer base. Here are tips for improving net retention:
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Upgrade prompts – Use in-app messages and notifications to nudge free users to paid plans.
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Free trial optimizations – Streamline the signup flow and demonstrate value to convert more trials.
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Targeted expansions – Upsell additional features, seats, or plans to accounts with potential.
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Usage notifications – Alert customers approaching usage or seat limits to prompt upgrades.
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Customer success – Build relationships and proactively uncover expansion opportunities.
How to Improve Gross Retention
Building stable recurring revenue by reducing downgrades and churn requires a focus on gross retention. Tips for improving gross retention include:
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User onboarding – Guide customers to activate, experience value, and form habits quickly.
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Adoption tracking – Monitor feature usage to find gaps and improve engagement.
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Churn analysis – Identify leading indicators of cancellation risk.
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Loyalty incentives – Offer perks and discounts for long-term customers.
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Account management – Check in frequently and resolve issues to maintain satisfaction.
Using Retention Data for Growth and Profitability
Both gross and net retention metrics provide invaluable, but different, insights that can guide key business decisions:
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Sales projections – Retention rates help predict recurring revenue and model growth.
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Pricing strategy – Optimize pricing and packaging based on willingness to pay.
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Expansion opportunities – Identify upsell and cross-sell potential in the customer base.
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Churn risk – Develop retention playbooks to win back struggling accounts.
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Marketing campaigns – Retarget customers with notifications, offers, and promotions.
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Profitability – Balance acquisition costs against lifetime value.
Tools for Tracking Retention
Leading SaaS platforms for monitoring retention metrics include:
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ProfitWell – Retention reporting with metrics on plans, features, cohorts, and more.
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ChartMogul – Visual retention analysis with segmentation and customer journey mapping.
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Baremetrics – Retention rate dashboards with churn predictions and customer profiling.
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Mixpanel – User analytics for behavior-based retention analysis and segmentation.
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Recurly – Subscription management with retention tracking by plan, add-on, and category.
Key Takeaways
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Gross retention focuses on baseline renewal revenue, while net retention measures expansion from upgrades and cross-sells.
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Monitor both metrics over time as leading indicators of growth and profitability.
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Use retention data to guide pricing, packaging, promotions, onboarding, and retention plays.
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Optimize the customer journey to maximize recurring revenue from your existing customer base.
Retention is a critical component of scalable and sustainable SaaS growth. Track gross and net retention KPIs to gain actionable insights into reducing churn and accelerating expansion revenue.
Choosing Between Gross Retention vs. Net Retention for Your Business
When it comes to choosing between gross and net revenue retention metrics, it ultimately depends on the nature of your business.
Is GRR or NRR more useful for understanding a company’s revenue generation efforts?
Both metrics are useful for understanding a businesss revenue generation efforts. Still, net revenue retention provides a more accurate picture of a companys ability to generate expansion revenue in addition to the standard service.
Net Revenue Retention is a Must-have Metric | SaaS Metrics School | NRR | SaaS Tips and Tricks
What is the difference between revenue retention and gross revenue retention?
The main difference between the two metrics is that gross revenue retention (GRR) measures the revenue percentage generated from customers who renew their subscriptions during a given time period without taking into account downgrades or upgrades.
What is net retention?
Net retention is a revenue metric that reflects the retained revenue from a company’s existing customers. To calculate it, gather your total revenue gained, your churn, your revenue from upgrades, such as upselling and cross-sales, and your revenue from downgrades and cancelations.
What is gross revenue retention (GRR)?
Gross Revenue Retention is the percentage of revenue you can retain from customers without taking expansion MRR into account. The lower the GRR, the higher your revenue loss from downgrades and churns. The median NRR rate for public SaaS businesses is 114%, whereas, for private companies, the rate is between 60% and 148%.
Is revenue retention a gross or net retention metric?
Both gross and net retention are revenue retention metrics, so it’s important to first consider what revenue retention is at a higher level. Revenue retention refers to the ability of a business to retain its customers for a given period and generate consistent revenue from them.
