How to Calculate Customer Retention Rate: Exploring Customer, Gross, and Net Retention
Blocks showing customers with a magnet, representing customer retention
haydar.al-saad
23 Sep

How do you calculate customer retention rate? What’s the difference between gross and net retention rates? And most importantly, once you know your retention rate, how can you improve it? Get the answers to these questions and more in our blog.

What Is Customer Retention Rate?

Customer retention rate is the percentage of customers who remain customers for a certain period of time. 

How to Calculate Customer Retention Rate

The customer retention rate formula is:

Customer retention rate = (# of customers lost during period/# of current customers) x 100

For example, say you sell a software solution with four pricing tier options. If you have 8 customers at the beginning of the year and 5 at the end, your customer retention rate is 62.5%.

A chart showing customer gains and losses with a customer retention rate of 62.5%

However, customer retention rate doesn’t take the value of each customer into account. In order to do that, we’ll need to take a look at gross and net retention rates based on your monthly recurring revenue (MRR) or annual recurring revenue (ARR).

Gross Retention Rate

Rather than looking at the number of customers you’ve retained, gross retention rate (GRR) looks at the value of those customers. With gross retention, we take downgrades and customer churn into account, but not upgrades.

How to Calculate Gross Retention Rate

The gross retention rate (GRR) formula is:

Gross Retention Rate = (Lost MRR from churns and downgrades during period/MRR at start of period) x 100

With this metric, we can get a better idea of our overall customer success through the value we’ve retained, rather than just the number of customers.

A chart showing customer gains and losses with a gross retention rate of 45.8

With the value of each customer now providing some “weight” to our data, we can see that our gross retention rate is actually significantly less than our customer retention rate.

Net Retention Rate

Net retention rate (NRR) is very similar to GRR, but it takes both downgrades and upgrades into account for a more full picture of your customer success.

How to Calculate Net Retention Rate

The net retention rate (NRR) formula is:

Net Retention Rate = (Lost MRR + Gained MRR from Expansion/MRR at Start of Period) x 100

While GRR looks at how well we are retaining customers, NRR can give a more complete look at our overall retention and customer growth.

A chart showing customer gains and losses with a net retention rate of 125%

Now we can see that our NRR is significantly higher than our customer retention rate and gross retention rate. While we are not retaining all our customers, we’re doing a good job with expansion by upselling, and cross-selling existing customers, ensuring our lead pipeline maintains its current rate.

These three metrics are key to improving your net revenue retention and tracking your overall customer success.

How Can You Improve Your Gross and Net Retention Rates?

Once you’ve calculated your retention rates, you may be shocked at what you find. So how can you improve customer retention and grow your business through your current customers?

Set Achievable Goals

The first step is to understand your starting point by calculating your retention rates, and setting reasonable goals to drive your business in the right direction.

You can do things the old-fashioned way, or you can try a customer success platform that will help you set, track, and reach your goals. You can break them down into manageable tasks, assign them to team members, add deadlines, and track progress, all in one easy-to-use interface.

Track Customer Communication & Improve Account Health

Now that your whole team is moving in the same direction toward your goal, it’s time to talk tactics. First up – tracking communication with your customers to improve the health of your relationships.

Integrate your CRM with RevSetter to see your last contact with each customer at a glance and create a priority list for follow-ups. RevSetter can even remind you or your team members automatically to check in with customers on a schedule.

You’ll also be able to track the strength of your customer relationships over time. In turn, you can more accurately forecast retention, expansion, and customer churn.

Measure Customer Data

The better you know your customers, the more able you are to meet their needs and improve your customer retention rate over time. With Revsetter, you can explore customer lifetime value, renewal value, and more at a glance to see the bigger picture and identify key accounts.

With our growth matrix, you can explore high risk and high opportunity customers to maximize retention and prevent unexpected churn.

Keep Customers Satisfied

A huge element of improving your customer retention is being able to grow alongside your customers to offer them the things they need before they go shopping elsewhere.

RevSetter helps companies identify upsells and cross-sells to meet customer needs and prevent them from looking for other solutions. Happy, fulfilled customers mean stronger retention and less need to bring in new business.Improve your customer retention rate and net revenue retention with RevSetter.

Take control of your retention strategy with a modern, intuitive solution. Improve your net revenue retention with RevSetter. Book a demo today!

Check out our other blog posts

The New Way to CS

Listen here on: Apple Podcast Spotify Google Customer Success has evolved in recent years - from focusing on old-school, vanity metrics and being seen as a support or services function to focusing on value-creating, ROI-driven metrics and being seen as a revenue...

Steps to Optimizing the Customer Lifecycle

Optimizing the customer lifecycle is crucial in order to retain the business. It’s all about maximizing customer satisfaction and long-term value. Check out some of these key tactical approaches to optimizing the customer lifecycle (that RevSetter can also help...

Integrating CS Tools into Daily Workflows: Maximizing Efficiency and Impact with RevSetter

It’s official - Customer Success teams are always constantly challenged to deliver exceptional results while usually managing a growing number of customer accounts. They’re often expected to meet these challenges without the right tools in place, substituting instead...

Aligning Your Sales and CS Teams for Better ROI

Proper alignment between sales and account management teams is crucial for driving revenue growth. If they aren’t aligned with handoffs and customer information exchange, it’s likely that churn will be a constant problem. While sales teams focus on acquiring new...

Adapting to Rapid Technological Change: A Checklist

These days, pretty much everything you pop into Gen AI spits back out something like this: “In today's fast-paced business environment, technological advancements are occurring at an unprecedented rate…” And it is true! Keeping up with technological shifts and changes...

CS as a Driver of Revenue Growth

People are finally starting to respect Customer Success (CS) more in SaaS, and CS has emerged as a pivotal function for driving revenue growth and ensuring long-term sustainability. CS is about ensuring customer satisfaction AND about maximizing the revenue potential...

Post-Sales Renewal Negotiation Checklist 

Renewals in the SaaS industry require a unique approach, as they often involve complex solutions and long-term partnerships. To help post-sales teams navigate these negotiations effectively, here are some key techniques and strategies to consider: Understand the...

CS Leadership: Driving Team Success

Being a CS leader isn’t just about managing a team - it's about inspiring a collective commitment to customer excellence and organizational growth. CS leaders must embody a vision that transcends mere metrics, focusing instead on fostering a culture where every team...

The Role of Customer Success in Go-to-Market Alignment

Aligning Customer Success teams with your full go-to-market (GTM) strategy is crucial for sustainable growth and customer satisfaction. CS plays a pivotal role in ensuring that your product or service meets the needs of your customers and drives long-term value....

Effective Budget Management

Effective budget management is crucial for driving sustainable growth. Executives and decision-makers are the ones who play a pivotal role in overseeing the budget decisions and ensuring that resources are allocated efficiently (hopefully including CS at the...

Modern Sales Strategies for Sustained Growth

The SaaS industry is characterized by rapid innovation and fierce competition. To achieve sustained growth in this dynamic landscape, SaaS companies must adopt sales strategies that both drive immediate revenue and lay the foundation for long-term success. Here are...

Driving the Value of Customer Success in the SaaS Industry

Account managers (AMs) play a crucial role in driving customer success and revenue growth. To excel in their role, AMs need access to innovative tools and technologies that streamline their workflows, enhance customer interactions, and drive better outcomes. Here are...

Competitive Analysis: Strategies for Success

Staying ahead of the competition is essential for success, and a key component of this is conducting a thorough competitive analysis. By understanding your competitors' strengths and weaknesses, you can identify opportunities for growth and development. Check out some...

Leveraging Social Selling in B2B Markets

Social selling has become an integral part of the B2B sales process! Sales managers play a crucial role in guiding their teams to leverage social media platforms to engage with prospects, build relationships with customers, and drive new logo sales and expansion...

Maximizing ROI from Your CS Platform Investment: Tactical Strategies for SaaS Executives

Investing in a Customer Success (CS) platform is a significant decision for SaaS companies aiming to drive growth and enhance customer satisfaction. To ensure the maximum return on investment (ROI) from your CS platform, it's essential to implement tactical strategies...

Strategic Account Planning in the AI Era: Leveraging Technology for Growth and Success

Strategic account planning is a cornerstone of success for account management professionals, particularly in the AI era. As Artificial Intelligence (AI) continues to reshape the business landscape, account managers must adapt their strategies to leverage AI...

Optimizing Customer Journeys with AI: Tactical Strategies for CSMs

As a Customer Success Manager (CSM) at a SaaS company, your role is to ensure that customers have a seamless and successful journey with your product. Leveraging Artificial Intelligence (AI) can help you optimize customer journeys, enhance customer satisfaction, and...

AI in Executive Decision Making and Leadership

Part of what comes with being an executive is being faced with tough decisions. Most of the time, they’re complex and have a significant impact on an organization’s bottom line. That means it’s important to leverage everything available in today’s tech landscape to...

Making It Personal: A Tactical Guide for Cultivating Customer Relationships

Besides affecting the bottom line of the business in terms of retention and expansion metrics, CSMs and Account Management pros play the most pivotal role in any organization in ensuring customer satisfaction and loyalty. Personalizing customer interactions is key to...

Go-To-Market Spotlight

The spotlight is on GTM leaders in 2024! Throughout the year, we'll be sharing insights and perspectives from conversations with our friends and thought leaders across a range of tech topics. Enjoy! Interview #6 We asked Markus "What pointers would you give a CSM on...

Setting Customer Success Goals for 2024: A Guide for Success

It’s another new and exciting year in the tech world, which means it’s time to set clear goals and expectations for the coming months! In this article, we'll dive into the significance of goal setting and offer some practical tips for creating goals that are both...

Future Customer Value Podcast Episode

Our CEO, Haydar Al-Saad, recently sat down with Sagar Shukla, CEO of Foresight, on his Future Customer Value podcast. In the episode, Haydar and Sagar dive into: -How you scale a post-sales organization  -Who "owns" the customer?  -Why RevSetter does CS Audits instead...

Salary and Compensation Models Guide: Mastering & Aligning Customer Success, Account Management  and Revenue Team Compensation Models

In today's highly competitive B2B SaaS landscape, achieving and sustaining rapid growth is the ultimate goal for any company. However, the path to scaling successfully involves more than just acquiring new customers; it's about retaining and expanding your existing...

The Essential Role of Customer Success in Driving Revenue for SaaS Companies

In today's competitive SaaS landscape, ensuring customer success has become paramount for companies looking to drive revenue and achieve sustainable growth. Customer Success professionals are uniquely positioned to play a vital role in maximizing customer value,...

Maximizing Customer Success & Revenue Potential: A Holistic Approach to the full Revenue Journey

In today's fiercely competitive SaaS and tech industry, driving revenue is a multifaceted endeavor that extends far beyond the realm of the sales team. Companies that embrace a comprehensive, customer-centric approach to revenue generation are thriving, and this...

Maximizing Growth: The Synergy of Customer Success and Account Management in B2B SaaS

In the ever-evolving landscape of B2B SaaS, the triumphant ascent of tech companies hinges on their ability to not just acquire customers but to retain them profitably. This demands a cohesive approach that aligns every facet of the organization towards...

Achieving Success as a CSM

Being a Customer Success Manager is a rewarding role, but can often be overwhelming if one doesn’t prepare and prioritize properly. After all, keeping a full portfolio of clients happy and successful while still actively pursuing growth opportunities requires a...

Executive Insights: Unveiling the Top Priority in Customer Success Today

Life in Customer Success is certainly never boring. With the business landscape in technology constantly evolving, Customer Success teams must be capable of adapting quickly and prioritizing the right strategies. Given the uncertainty of the last 6 months, our team at...

Webinar: Proving Customer Success as a Profit Center

Rewatch our webinar from April 20th 2023. The core reality of corporate life is simply: Power Follows Money. If you are not perceived as being necessarily connected to strategically significant profitability streams, in hard economic times, your job and your team may...

How Customer Success and Account Management Teams Can Grow Enterprise/Large Customer Accounts

In the highly competitive B2B tech SAAS market, winning large customers is a top priority for companies. However, once the deal is closed, the real work begins to keep these valuable customers happy and retain them for the long term. This is where customer success and...

I love Customer Success because People Matter! It’s not just business, it is absolutely personal.

I had the pleasure of interviewing Jenelle Friday, VP of Customer Success at Forecastable. Hello! Thank you so much for giving me the opportunity to share my story. I’m originally from the Seattle, WA area so yes I love cloudy rainy days, green surroundings all year...

Grow Your Business From Within with the Premier Customer Success Platform

Stop wasting time on expensive, low-conversion sales and business development tactics. Instead, maximize the value of the customers you already have with RevSetter. The Customer Success Platform Built for Revenue Retention A Suite of Customer Success Tools at Your...

Understanding the Rule of 40: How Net Revenue Retention (NRR) Drives Success in B2B Tech

The "Rule of 40" is a common benchmark used by many B2B tech companies to measure their success. The Rule of 40 is the sum of a company's growth rate and profit margin, and a result of 40 or higher is considered a good indicator of a healthy and sustainable business....

What Is CSM Software? A Comprehensive Guide to Customer Success Platforms

Customer success management software (commonly known as CSM software or Customer Success Platforms (CSP)) is an immensely powerful tool for businesses of all sizes. It helps companies focus on the satisfaction of their current customer portfolio to grow their business...

The Importance of Retention and Customer Success for SaaS companies

Net Revenue Retention (NRR) is a key metric for Software-as-a-Service (SAAS) companies as it measures the ability of a company to retain and grow its customer base over time. In the B2B (business-to-business) space, the importance of NRR cannot be overstated as it is...

Customer Intelligence is the key to unlocking revenue growth!

I had the pleasure of interviewing Mary Poppen, Chief Business and Customer Officer at involve.ai recently. We discussed all things “Customer” and how to drive amazing customer experiences at scale while growing Net Revenue Retention! Mary Poppen is the Chief Business...

Customer Success goes beyond a function — it is a mindset

I had the pleasure of interviewing Stephanie Hamilton, a gregarious woman who has dedicated the past 15+ years to the Hospitality Industry. Stephanie shared her own personal thoughts, opinions and ideas with us. From multiple positions at hotels to post-sales...

Customer Success — one of the greatest revenue engines ever

I had the pleasure of interviewing Ariel Benzakein. Ariel has over 25 years of experience leading high performing teams at software companies, currently in SaaS, but going back to the on-premise software days. Ariel began his career in software sales, but spent the...

Customer Success — the art of putting value & people first

I had the pleasure of interviewing Nir Kalish, Director of Customer Success at StrongDM, CS coacher, and CS advisor. Nir has 15+ years of experience building QA, Solution Engineering, and Customer Success groups from the ground up in early-stage startups. He is a...

Value is all about the outcome, not just the journey.
(Although he loves customer journey’s too!)

I had the pleasure of interviewing Michael Boyd, a long-time customer success leader who has just stepped into a new challenge as the VP of Customer Success at Vanta, the leading automated security and compliance platform that helps companies continually monitor...

Axonius’ James Levine sees an exciting future for the Customer Success space

I had the pleasure of interviewing James Levine who brings with him over 21 years of experience in the Customer Success space including a wealth of Business Intelligence, business strategy, analytics and SaaS expertise. James joined Axonius in February 2021 to form...

Building an Effective Customer Success Team

Customer success teams are crucial to organizations from SaaS companies to small businesses to global corporations. But what exactly does a customer success (CS) team do? What might your team structure look like? And what should you look for in candidates to build an...

How to Calculate and Improve Customer Lifetime Value

One of the most important metrics for SaaS companies is your customer lifetime value. Understanding this metric can help you strategize your business growth and nurture high-opportunity customers. Here’s everything you need to know about how to calculate CLV  and...

How to Improve B2B Retention With the Customer Journey Map

The customer journey map can provide insights into your audience, offering, and future as a company. But how can the customer journey map work for B2B audiences, especially in relation to a service or subscription instead of a product? Today we’re taking a look at a...

Why Investing In Customer Success Software Is Key to Business Growth

Growing a business sustainably is tough. New business is risky and lead generation tactics can waste significant resources only to fail to close. At RevSetter, we believe that the best customers are the ones you already have. Our customer success software helps you...

How to Identify the Best Upselling & Cross-Selling Opportunities for Your B2B Business

Existing customers are one of your most valuable assets when it comes to company growth and expansion. But how can you best grow the lifetime value of a customer? Upselling and cross-selling are two classic sales techniques that, when used correctly, can have a huge...

How to pick a Customer Success tool

As Customer Success continues to boom, there are more and more leaders out there in search of a great Customer Success or Customer Growth software that will help them become more structured and deliver better results. So, what should you do before you get your next CS...

Help! How do I hit my CS quota?

You are in SaaS. You are a CSM, Account Manager, or CS Account Executive and you are measured on churn. Gross Revenue Retention (also known as Gross churn/GRR) and/or Net Revenue Retention (also known as Net churn/NRR). You are trying to figure out how to consistently...

Ditch the old-school Customer Lifecycles

What is different between pre-sales (new business/new logos) and post-sales (customer success, account management etc)? Well, there are many things of course. But fundamentally one of the most important differences is that the (pre-) sales process is mostly linear in...

Maximize your CS portfolio today

Having the right strategy to get the most out of your portfolio will help you unlock your full potential. But as all Customer Success (CS) professionals know, getting the most out of your portfolio is not always easy. Getting the right data, structuring your portfolio...

The Next Transformation of Customer Success

The story of CS is still in its early stages, but is entering a pivotal point in time. A time that calls for innovative technologies and an approach that helps companies take that vital next step. At this moment, the truest measure of value is when a customer decides...

How to stay organized in Customer Success

Most CS leaders would agree that staying organized is key to being successful in CS, whether it is on a micro-level (rep) or macro-level (org). You need to be organized to succeed long-term. Mastering organization in a fast-moving and complex CS world can be tough. It...

Does your team know what truly creates value?

To all CS leaders & CS professionals out there. Go to a few of your CSMs/account managers individually and ask them (or yourself) a simple question: what is the single thing that creates the most value for our customers? Start with “what”, not “how” - because if...