Gross Revenue Retention: The Foundation of SaaS Stability

Gross Revenue Retention

In this comprehensive guide, you’ll learn everything about Gross Revenue Retention (GRR), a fundamental metric that shows how well your SaaS business retains its existing revenue.

We’ll cover how to calculate it, what makes a good GRR, and practical ways to improve it. Whether you’re a first-time founder or scaling your SaaS business, you’ll find actionable insights to help strengthen your company’s financial foundation.

Understanding Gross Revenue Retention

Gross Revenue Retention measures how well you maintain revenue from existing customers, focusing solely on revenue decreases and losses. Unlike its cousin Net Revenue Retention (NRR), GRR doesn’t include any revenue expansion from existing customers.

Think of it as your baseline retention – the worst-case scenario of how much revenue you keep if no customer ever upgrades.

For example, imagine you start the year with three customers:

Customer A: Pays $1,000/month
Customer B: Pays $2,000/month
Customer C: Pays $3,000/month

During the year:

Customer A: Stays at $1,000/month
Customer B: Downgrades to $1,500/month
Customer C: Cancels their subscription

Your GRR calculation would look like this:

Starting monthly revenue: $6,000
Revenue after changes (excluding any upgrades): $2,500
GRR = ($2,500/$6,000) × 100% = 41.7%

The Mathematics Behind GRR

The Basic Formula

GRR = (Starting Revenue – Downgrades – Churn) / Starting Revenue × 100%

Let’s break this down with a detailed example from a real-world scenario. Imagine you run a marketing automation SaaS platform:

Starting Monthly Revenue (January 1st): $100,000
During January:
– Downgrades: $5,000 (5 enterprise customers moved to a lower tier)
– Churn: $10,000 (10 customers cancelled)
– Upgrades: $20,000 (NOT included in GRR)

GRR = ($100,000 – $5,000 – $10,000) / $100,000 × 100%
= $85,000 / $100,000 × 100%
= 85%

What to Include in Your Calculation

For accurate GRR calculations, include:

All revenue decreases from existing customers
Complete cancellations (churn)
Plan downgrades
Reductions in seat count or usage
Currency exchange losses (for international customers)

What to Exclude

Do NOT include:

Any form of revenue expansion
New customer revenue
Upgrades from existing customers
Additional seat purchases
Feature upgrade revenue

Industry Standards and Benchmarks

Enterprise SaaS

For enterprise-focused SaaS companies (average contract value > $100,000/year):

Elite: Above 95% GRR
Good: 90-95% GRR
Average: 85-90% GRR
Concerning: Below 85% GRR

Mid-Market SaaS

For mid-market companies (average contract value $25,000-$100,000/year):

Elite: Above 92% GRR
Good: 85-92% GRR
Average: 80-85% GRR
Concerning: Below 80% GRR

SMB SaaS

For SMB-focused companies (average contract value < $25,000/year):

Elite: Above 85% GRR
Good: 80-85% GRR
Average: 75-80% GRR
Concerning: Below 75% GRR

Impact on Business Health

Valuation Impact

GRR directly affects your company’s valuation. Here’s a real example from the SaaS market:

Company A:
– ARR: $10M
– GRR: 95%
– Valuation multiple: 15x ARR
– Valuation: $150M

Company B:
– ARR: $10M
– GRR: 80%
– Valuation multiple: 8x ARR
– Valuation: $80M

This example shows how a 15% difference in GRR can lead to nearly double the valuation multiple, even with the same revenue.

Factors Affecting GRR

Product Stickiness

Product stickiness refers to how deeply integrated your solution becomes in customers’ operations. Here’s how different levels of integration affect GRR:

High Stickiness Example:

A CRM system that contains:

All customer data
Custom workflows
Integration with other tools
Years of historical data

This typically results in GRR > 90% because switching costs are high.

Low Stickiness Example:

A standalone tool with:

Limited customer data
No integrations
Easy data export
Many comparable alternatives

This often results in GRR < 80% due to easy switching.

Improving Your GRR

Customer Success Program Optimization

Here’s a practical framework for improving GRR through customer success:

First 30 Days:

Personalized onboarding plan
Key feature activation tracking
Daily usage monitoring
2-3 check-in calls

Days 31-90:

Weekly usage reports
Monthly success review
Feature adoption expansion
ROI documentation

Ongoing:

Quarterly business reviews
Proactive feature training
Regular health checks
Annual contract reviews

Risk Identification System

Create an early warning system by monitoring these key indicators:

Usage drop > 30% month over month
Key stakeholder departure
Missed or delayed payments
Decrease in feature adoption
Increase in support tickets
Declining NPS scores

Measurement and Tracking

Data Collection Requirements

To accurately track GRR, you need to collect:

Customer contract values
Start and end dates for each contract
All price changes (separating upgrades and downgrades)
Cancellation dates and reasons
Product usage metrics

Common Challenges

Multi-Year Contract Considerations

When dealing with multi-year contracts, consider these factors:

Calculate GRR both annually and at contract renewal
Track mid-contract downgrades separately
Account for pre-paid vs. monthly billing differences
Monitor usage even during locked-in periods

Conclusion

Gross Revenue Retention is fundamental to your SaaS company’s health and valuation. To improve your GRR:

Implement a robust customer success program
Build product stickiness through integrations
Create early warning systems for churn risk
Track and analyze retention data consistently

Remember, improving GRR is a long-term effort. Even a 1% improvement in GRR can significantly impact your company’s value over time. Start by measuring your current GRR accurately, then implement the strategies outlined in this guide to improve it systematically.