How to calculate your revenue retention
There are two main ways to calculate net revenue retention: gross retention and net retention. Gross retention looks at the total recurring revenue from customers in a given period, while net retention looks at the change in recurring revenue from customers in a given period.
How to calculate net revenue retention for SaaS
To calculate net revenue retention, you will first need to gather data on your customer churn rate and your customer lifetime value (LTV). Once you have this data, you can use the following formula:
Net Revenue Retention = ((1-Churn Rate) * LTV) - Gross Revenue
For example, let’s say that you have a customer churn rate of 5% and an LTV of $100. If your gross revenue for the period is $1,000, then your net revenue retention would be ((1-0.05) * 100) - 1000 = 95%.
This formula can be helpful in understanding net revenue retention, but it’s important to keep in mind that there is no magic number for net revenue retention. The right net revenue retention rate will vary depending on your specific business model and goals.
If you’re looking to improve your net revenue retention rate, there are a few things you can do:
- Offer discounts or incentives to customers who stay with your service for a longer period of time
- Provide additional value to customers so that they see your service as essential
- Improve your customer service and support so that customers are less likely to churn
How to calculate gross retention for SaaS
There are two ways to calculate gross retention: cohort analysis and monthly recurring revenue (MRR).
Cohort analysis is the more detailed of the two methods, and involves tracking groups of customers (cohorts) over time to see how much revenue they generate. This method can be useful in understanding which cohorts are generating the most value for your business.
To calculate gross retention using MRR, you will need to track the MRR for each customer at the beginning and end of each month. You can then use the following formula:
Gross Retention = ((Ending MRR - Starting MRR) / Starting MRR) * 100
For example, let’s say that you have a customer with an MRR of $100 at the beginning of the month, and an MRR of $120 at the end of the month. Your gross retention for that customer would be ((120-100)/100)*100 = 20%.
You can also use this formula to calculate gross retention for your entire customer base. This will give you a good overview of how much revenue you are retaining from one period to the next.
It’s important to keep in mind that gross retention only measures the amount of revenue that is being retained, not the number of customers. So, if a small number of customers are responsible for a large portion of your recurring revenue, your gross retention rate will be high even if you are losing a lot of customers.
No matter what net revenue retention rate you ultimately achieve, it’s important to constantly monitor this metric and make sure that you are doing everything you can to retain your existing customers.