Adapting to the New SaaS Normal

Renat Zubayrov

September 04, 2024

Adapting to the new realities in SaaS

The Importance of NRR in Revenue Operations and Customer Success:

As SaaS businesses face heightened challenges in 2024, Net Revenue Retention (NRR) has emerged as a critical growth driver. Based on insights from the excellent 2024 SaaS Retention Report, we wanted to highlight how Revenue Operations and Customer Success can maximize NRR for sustainable success.

Understanding the Shift: Why NRR Is Now Critical

The SaaS market has transformed since the pandemic-driven boom in 2020-2021. A rapid expansion during that time, fueled by cheap capital and high demand, led to skyrocketing valuations and aggressive new customer acquisition strategies. However, this growth bubble burst by the end of 2021, forcing companies to rethink their business models. By 2024, growth in SaaS had slowed across the board, and business models that relied heavily on new customer acquisition began showing their weaknesses.

Today, SaaS companies are navigating a more competitive and cost-conscious environment, where acquiring new customers is expensive and challenging. This shift has made retention, not acquisition, the primary growth driver. For companies with $15M-$30M ARR, up to 40% of their growth now comes from expansion revenue, highlighting the importance of retaining and expanding relationships with existing customers.

The Role of Revenue Operations in Boosting NRR

Revenue Operations (RevOps) plays a vital role in aligning sales, marketing, and customer success teams to optimize NRR. In an era where new customer acquisition is slowing down, RevOps ensures that the revenue-generating functions are aligned to capitalize on existing customer relationships. Companies that focus on NRR through efficient RevOps strategies enjoy more predictable, long-term growth.

One of the key takeaways from the report is that even best-in-class companies are seeing declining NRR. For example, companies with over 12,000 subscribers struggle to maintain 100% NRR, with the average NRR falling to 78%. This decline underscores the need for more integrated, data-driven RevOps practices that focus on customer segmentation, personalized upsell strategies, and reducing churn through proactive engagement.

Customer Success: The Backbone of Retention

Customer Success teams are essential in ensuring that customers derive continuous value from a SaaS product, which is the foundation for retention and expansion. The 2024 SaaS Retention Report emphasizes that Customer Success is a key driver of NRR. Companies that prioritize Customer Success are better equipped to manage churn and contraction, which are becoming more significant factors in ARR losses as businesses mature.

For companies with fewer than $1M ARR, new business is still crucial as they seek product-market fit. But for companies that have crossed the $1M threshold, retention and expansion take center stage. Effective Customer Success teams not only keep churn in check but also identify expansion opportunities by closely monitoring product usage patterns and customer feedback.

The NRR Benchmark: The 100% Challenge

Achieving an NRR of 100% or more is considered the gold standard for SaaS businesses. It signifies that a company is not just retaining its customers but also expanding revenue through upselling and cross-selling. However, the report highlights that reaching 100% NRR is becoming more challenging, especially for larger companies with diverse customer bases.

Despite these challenges, companies with 100% NRR grow at twice the rate of those below that benchmark. The median company with 100% NRR grew by 48% year-over-year in the first half of 2024, showcasing the power of strong retention and expansion strategies. For SaaS companies, this means that investing in Customer Success and optimizing RevOps to boost NRR is essential for long-term growth.

Strategies to Improve NRR in 2024

To stay competitive in 2024, SaaS companies need to focus on several key strategies to improve NRR:

1. Segmentation and Personalization: Companies must use data to segment their customer base and provide personalized upsell opportunities. High-value customers should receive tailored offers that address their specific needs, driving expansion revenue.
2. Proactive Customer Success: Customer Success teams need to be more proactive, anticipating potential churn signals and addressing issues before they lead to downgrades or cancellations. This is particularly important as churn has become a significant contributor to lost ARR.
3. Seamless Onboarding and Engagement: Ensuring a smooth onboarding process is crucial for new customers. The first year of a customer’s tenure often sees the most expansion, as they ramp up their usage of the product. Beyond that, continued engagement is necessary to maintain retention rates.
4. Reducing Downgrades and Contraction: While expansion is essential, companies also need to minimize the impact of downgrades. This can be achieved by offering flexible pricing models that align with customers’ needs, especially as their requirements evolve over time.

In 2024, NRR is the most critical metric for SaaS companies aiming for sustainable, capital-efficient growth. With new customer acquisition becoming more difficult and costly, businesses must focus on retaining and expanding existing customers to thrive. Revenue Operations and Customer Success teams must work in harmony to boost NRR through strategic alignment, personalized customer engagement, and proactive retention strategies.

By making NRR a central focus, SaaS companies can position themselves for long-term success, driving growth even in challenging economic environments. This shift marks the new normal for the SaaS industry—one where retention is not just a defensive strategy but a powerful growth lever.

To learn more about the latest NRR trends and benchmarks from over 2,500 SaaS companies, you can explore the full SaaS Retention Report: The New Normal for SaaS.

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