Three (3) Weaknesses of High NRR

 Three essential data high NRR hides from the eye of a Customer Success Leader. 

For SaaS companies, the ratio of recurring revenue to total revenue earned in the past 12 months is a critical metric that tells if they are growing efficiently. Calculating your Net Retention Rate (NRR) is one of the most important financial calculations the stakeholders monitor; hence, equally important for Customer Success leaders. Yet, while NRR is an indicator of growth efficiency, it doesn’t give you everything you need to know how healthy your company is. In this article, we’ll explore the three (3) weaknesses of high NRR and how they may be affecting your bottom line. 

  1. High NRR hides slow growth in new customersHaving high NRR shows the value continuously generated by your company’s old customers. While this is good news, a Customer Success leader must still be careful as new customers may be generating lesser growth. It is necessary to segment old and relatively more recent customers before evaluating NRR. This would help provide insight into how well the Customer Success Managers handle the newer customers’ journey towards value attainment.   
  2. High NRR hides customer churn The churn rate is the percentage of customers who have left your company and is a crucial metric for the company’s success in providing the expected outcomes for the customers. A high churn rate means that the company and the Customer Success team are doing something wrong, leading to unsatisfied customers leaving the company. Having high NRR makes losing very few percent of customers seem like not a bad deal. In fact, it may seem normal since having churn is normal as customers may leave simply because they lost interest or for no reason at all. Like any other metric, if not monitored properly, there’s a possibility of issues not being addressed, and ignoring churn would lead to devastating results.
  3. High NRR hides second-rate Customer Success Managers When you have a high NRR, it’s hard to figure out who contributes to your Customer Success team. If a customer churns and your CSM didn’t do anything wrong, you don’t know if they were not providing value or failing to execute on their job. As controversial as it sounds, it still is in the best interest of a Customer Success leader to evaluate each CSM’s skills and provide adequate training should be needed. Unlike when you have low NRR, monitoring your Customer Success team becomes easier because you can quickly identify what went wrong and what should be done to solve it. 

 

A Customer Success Manager’s role is to help the company’s clients achieve their desired outcomes. They do this by working with the sales team to understand the clients’ needs and then helping them get there. Managing a customer success manager or a customer success team is essential. It sets a minimum standard and expectations for performance to ensure that value is being achieved; if they’re not meeting those standards or expectations consistently enough, something needs fixing. 

 

In short, 

High NRR is an excellent metric for SaaS companies, but it has its weaknesses. Because of these weaknesses, it is essential to ensure that new customers are growing at an acceptable rate and that second-rate CSMs aren’t sabotaging retention. 

This training asset is worth 4 CPD Minutes