Maximizing B2B SaaS Revenue with NRR: Why It Matters and How to Do It

December 13, 2022

by Lihi Lotker Product-led growth Revenue growth

In times of recession, businesses are more likely to cut costs wherever possible, including by canceling subscriptions to non-essential services. This means that B2B SaaS companies need to focus on retaining their existing customers in order to continue generating revenue. NRR allows companies to track their success in doing so and make any necessary adjustments to their retention strategies.

Winning at revenue growth also relies on revenue retention. Revenue retention will give you the keys to unlocking all other aspects of revenue growth strategy.

These users prop up all outreach to new customers showing that your brand has a high-level of trustworthiness for long-term relationships.

Revenue growth can seem like a no-brainer, but when it comes to revenue retention, it can feel like a shot in the dark. So, what is net revenue retention, and why does it matter so much?

Net revenue retention, abbreviated NRR, is a metric used to boost business growth.

What is NRR?

Net Retention Rate (NRR) is a key metric for any B2B software as a service (SaaS) company, but it becomes particularly important in times of economic recession. NRR measures the percentage of a company’s existing customers that continue to use and pay for its services from one period to the next.

Industry leaders describe NRR as “net dollar retention.”

Net dollar, or net revenue retention, the company considers upgrades, downgrades, and customer churn to analyze the business customer base.

NRR breaks down into monthly segments called monthly revenue retention, or MRR. MRR is a rough estimate of the revenue that comes from your user base each month.

Why is NRR important?

Experts believe NRR is now more important than ever before.

With the current economic slump, it is now more important than ever before to retain customer bases.

Estimates state that a business can deliver 20 percent growth yearly with the existing customer base.

Growth happens without adding a single new user. Why? Because a stable customer base has expansion opportunities. We’ll talk about that in a minute. First, we’ll define the logic and the math that backs NRR.

Know what churn looks like

When factoring NRR, you will also want to look at churn cases. Churn is the rate at which customers end relationships with your brand.

If a customer cancels a subscription, this may not be the same thing. They may still access your free version of the product, and yet not be paying for a subscription for whatever reason.

Churn distinguishes between these cases and cases where a customer has broken a connection with your brand forever.

The math of NRR

Net Revenue Retention requires some simple math. Use the NRR equation:

(Contraction MRR – (Churn MRR + Expansion MRR)) / Starting MRR

Alright, so math sucks. Let’s break this down.

To find your NRR, you will add your growth to your starting MRR. Subtract downgrades and churn from this new MRR. Now divide the new MRR by your starting MRR. Last, multiply the MRR you got from the division by 100%. This final result is your NRR.

How to use your NRR

You might be wondering why we put you through the math. Trust us, it’s worth it.

Simmering it down, NRR is the tool we use to gauge business growth potential from our existing user base. These are more than just fancy calculations. We’re solving for where our growth potential is so we can strategize the best ways to influence that growth to happen.

Industry leaders say that a good NRR is going to show growth of over 100%.

When the NRR passes the 100% mark, we see growth instead of a static revenue retention rate. An NRR of 100% shows that our annual revenue retention, or ARR, has either grown or remained the same.

Ideally, we want the NRR number to be 109%. This shows that we are retaining a good revenue income and also growing by roughly 9%.

Recognize the room to grow

While 9% is ideal, we have found that a business can grow by 20% per year by keeping a healthy net revenue retention.

Using NRR gives us insights into how to upsell our subscription base.

Because NRR can show us who is already engaging with a paid version of the product, we can use these metrics to estimate who will be open to an upsell. Upselling happens when your current customer base is open to the value offer for a higher-cost subscription.

Invest time in expansion opportunities

Remember a little while ago when we said NRR was good for expansion opportunities? We’ll bring it full circle now. Upselling is one of the expansion opportunities we can explore through NRR math.

KPIs for the upsell

We need a little bit from our data rather than solving for growth rates. KPIs take over here. Informed KPIs give us the data groups and tools for seeing the value our users are looking for in an upgrade. We sell from there.

Building the upsell

Setting data priorities straight empowers the upsell process. As we explore upselling, we work towards expansion revenue goals. Expansion revenue is any revenue that expands from initial customer contact. We call it expansion revenue because we’re exploring an expanding relationship with our customers.

Upselling is one of two primary expansion catalysts. The second catalyst is cross-selling. Cross-selling introduces customers to new features or add-ons within their existing plans.

Prevent churn

Remember that data can alert you to positive growth opportunities, but it can also show you areas where improvement is key. To avoid churns and “drop off,” you need to know your data and streamline the upsell and cross-sell to work naturally with where the customer is in their relationship with you.

Marketing leaders remind us that no one likes to be “sold to.” A customer with an issue is more likely to have a negative reaction to expansion measures if they feel that their current needs are not being met. However, addressing this is relatively simple. When in doubt, return to your user data flows.

Know your data

We talked about KPIs a little while ago. Here is where they get all-important. Without a clear use for data, teams fumble around product management funnels in the dark.

This is why actionable, AI-led product growth modeling is important. Here we point a laser to the KPI and hone in on data that is essential for reaching those KPI-based goals.

Make your data work for the customer

Whether you upsell or cross-sell, make data work for the customer. Boost your pipeline to understand the customer user-experience flow. Then, use this information to work in natural upsell and cross-sell opportunities.

Coho’s AI-enhanced product-led growth insight tool will notify the team when a customer reaches a milestone.

Notification helps teams to optimize the flow of selling prompts in a way that flows with the customer journey and needs. Is a customer outgrowing their current subscription? It’s time for an upsell. Is the customer running into a few roadblocks based on the need for one additional feature? Cross-sell to them.

Coho AI enables personalized selling based on usage insights.

Takeaways

Customers are people. Data helps us relate to them in ways that are as diverse as they are. With better insights into the flow of their needs and wants, we can use the NRR to optimal advantage.

Coho AI believes that product-led revenue growth is people-led revenue growth. AI empowers human interaction in mass numbers in ways that other growth models never could.

Bottom line: the NRR is vital to underlying our core community of users. By building on this, you will invest in the life and future of not only your product but also your brand community. In an economy driven by uncertainty and a deep need for connection, this makes daylight to dark difference between you and your competition.

How to turn your company into a Product-led company

November 23, 2022

by Lihi Lotker Product-led growth Product-led sales

Did you know that investors have found that product-led companies are twice as likely to grow fast than other models?

A June study published by TechCrunch discovered that product-led growth models are “2x more likely to grow quickly than sales-led” growth models. To tap into this rapid growth opportunity, you’ll want to know how to transform your current growth model to follow product-led growth. Today we’ll show you how it’s done.

Understand your user journeys

First, you’ll need to understand the path your users take through your product. Data that tracks the user journey through your product is essential here.

By tracking user data, you are observing user interaction with your product. This gives you a clear oversight into a user’s path, what went well and what may have triggered difficulty. With this oversight, you can start honing in on improvements.

Major companies such as Tesla gather user data to hone in on the “product experience” of their brand. By collecting feedback, Tesla ensures that it engages with real users to constantly improve the product experience. Tesla has been credited with “transforming car buying” into an ongoing experience rather than a one-off purchase.

Create product experiences that push time-to-value

Now that you’ve got a clear idea of the customer’s path, you’ll want to cut down the obstacles a customer faces using your product. Customers essentially search for a quick problem-solving solution when shopping for products. By trimming down obstacles, you can invest in the speed at which your product solves your customer’s problem.

This rate of problem-solving speed is called “time to value”. When you reduce the obstacles a product user faces to reach their ideal solution, you accelerate the time-to-value ratio. Creating product experiences that push this speedy solution arrival time is an essential part of driving home a PLG model.

User Guiding blog summarized PLG as the growth model where the product is the core of the business, and customers are the core of understanding the product. Customer experience and engagement steer data gathering to build a stronger core.

Steer users to natural conversions with value

PLG modeling focuses on honing and empowering customer-to-product relationships. Steer users to conversions by letting them understand the true value of your product on their own. A free product with many key value features entices the user to experience the product further. This leads to a natural conversion to a higher value tier within your product.

But while many companies have adopted this model and do let their users take the product for a ride before they buy it, they still treat the conversion stage as “one size fits all”, instead of following the actual user journey their users go through and offer them to purchase a plan only once they hit an actual milestone and are ready to make the purchase.

Introduce new features based on customer usage

As you steer natural conversions through value, you will want to gradually work in new features and experiences. Using user data to hone this usage-based feature building guarantees that you are adding features customers are eager for, based on their needs.

UserGuiding blog explains user data led feature adding works because the data “comes up” with new features based on user behavior, and conveys to the user their needs and expectations.

Base pricing around customer needs

In order to become a full-fledged PLG model, you need to scale into flexible pricing packages that allow customers to subscribe according to their preferences. With flexible pricing, customers don’t feel pressured into making time-based commitments, and they can choose the plan that fits their needs the most.

Because PLG needs to deliver value and customer experience instantly, breaking down hesitation barriers is key to unblocking the user pathway to conversion.

Strategize the upsell

PLG experts advise strategizing the upsell after the product has delivered value. Users with access to a demo product already have experience with your product. A PLG company needs to base upselling on features that stand out as added value on top of the current experience.

By focusing on delivering experience-driven products, PLG models break down barriers to monetization. When the time comes for a paid version, the user knows the current product value and is more willing to pay for added value.

Overview

These steps are starting places. While product-led growth is easy to implement, there are also many intricate parts that make up a successful PLG growth model. These steps can set you up with an efficient PLG growth model to build from.

Want to learn more? Follow our team of PLG visionaries at Coho for more insights or contact us.

Common misconceptions about Product-led growth

November 11, 2022

by Lihi Lotker Product-led growth

It’s no secret that product-led growth strategies, abbreviated PLG, are all the rage right now. As a result of PLG’s go-to-market models, B2B sales have been permanently altered, making it an essential growth leader for modern companies. However, common misconceptions about PLG encourage growth leaders to dismiss it as a fad.

PLG misconceptions cost businesses who fail to understand the marketing and sales significance of product-led strategy. We’ve narrowed down a few of these common myths so you know why they cost you, and how to avoid them.

Myth 1: You won’t need a sales team

Product-led growth marketing is the strategic arm of product-led companies. “Product-led” means that the company uses its resources to hone the power and appeal of the product it offers so that it can convert sales on its own merits.

A product-led growth model still needs a sales team because sales teams can help identify key customers, wrote Forbes Council Member Vanessa Dreifuss.

Myth 2: Your buyers will be entirely self-sufficient

While a solid product-led growth model will seek ways to empower the self-sufficiency of the user experience, the buyer won’t be entirely self-sufficient.

The PLG growth go-to-market enables customers to be highly self-sufficient but does eliminate the need for customer support. Customer experience support teams measure their success in their response time to customers, and the efficient support of the customer’s voice.

Myth 3: PLG will drive revenue by itself

PLG is often mistaken for a revenue-driving strategy by itself. Contrary to this belief, Darrow explained that PLG streamlines the potential conversion from free demos to paid subscriptions. PLG by itself doesn’t drive revenue or target the right user.

Targeting the best users and closing sales requires smart use of KPI data and the combined effort of team support, which we’ll get into more below.

Myth 4: You won’t need marketing

A PLG-led growth model still needs a marketing push. Believing that PLG can take care of itself without any push from marketing costs teams because they rely too broadly on PLG, and essentially don’t understand the outcomes PLG can generate. The basic outcomes from PLG are: 1) Acquisition and 2) Conversions.

PLG provides a pipeline to draw in customers and streamline their product-interaction process. The same rules of marketing that apply to previous growth model leaders still apply to PLG because marketing drives brand awareness and other outcomes that boost PLG’s efficiency.

Go-to-market research finds that PLG works best when it is aligned with the revenue marketing team efforts.

Myth 5: Self-service is the only buying experience customers want

While it’s true that the modern buyer wants the convenience of self-service, they still need help with sales questions sometimes. The sales teams help to make products better by addressing customer needs.

In the same way that PLG speeds up the buyer’s journey process, sales teams accelerate closing deals. Sales teams in a PLG supportive role can “supercharge” sales growth.

How To Implement PLG The Right Way

You can take the next step towards an informed PLG implementation by dispelling common misconceptions. Here’s where Coho comes in. Our platform helps you target and optimize key KPIs and orchestrate your customer journey flow.

With Coho’s platform, teams can apply data to their PLG growth model, generating the correct hand-in-glove use of team support for the streamlined user journey.

Streamlined data, focusing on key customer retention paths, support the tactical implementation of PLG. By honing in on focal points in the data, a team can eliminate redundant data gathering and focus on data streamlining their revenue funnels.

Want to learn more? Contact us today.

6 steps to optimize your user and customer journey

October 4, 2022

by Lihi Lotker Customer journey Product-led growth

The customer journey is the backbone of any successful business strategy. It’s the roadmap that leads a prospect from being just a potential customer to becoming a loyal and returning one. The ultimate goal of any growth or go-to-market team is to streamline this process and make it as smooth and efficient as possible for their target audience.

Optimizing the customer journey is crucial for companies of all sizes and across all industries. It involves mapping out the key touchpoints and experiences that a customer has with your brand and finding ways to improve them. In this article, we will delve into the six essential steps that every company should take to optimize their user and customer journey. These steps will help you better understand your customers’ needs and create a journey that is tailored to their unique requirements.

Step one: Gather your user data

The key to optimizing the customer journey is understanding who your target audience is and what their needs and preferences are. This information is crucial for making informed decisions about how to optimize their journey. To do this, it is important to collect and analyze customer data, including metrics, product data, and communication data. These metrics will provide insights into your target audience and guide the optimization process. Choose the metrics wisely, as they will play a crucial role in shaping the journey for your customers.

Step two: Map your user journey

A crucial aspect of optimizing the user journey is mapping out each step from start to finish. This involves considering the timeline of the journey, identifying different user groups and their unique needs, and analyzing the behavior patterns of your target audience. By understanding these key elements, you can create a comprehensive map that effectively guides users through their experience with your brand. Utilize available data and research to gain insights into your audience’s behavior and ensure your map accurately represents their journey.

Step three: Evaluate funnel performance

Now that you know what the user journey looks like in general, work on making it as easy as possible for as many of your target groups as possible. Where are the strengths of your funnels, and where are the potential pitfalls that will cause your target to fall away or look elsewhere? Just as importantly, what are the popular parts of the journey that move your audience forward more rapidly to the next step? Getting feedback from users is essential at this stage. Make sure that you listen closely to what your target users have to say at chokepoints and acceleration points.

Step four: Know your ideal customer profile

Once you have mapped out your user journey, observed targeted group behavior within that journey, and received feedback as to why those behaviors took place, you can then identify a target group that is most aligned with your overall user journey and product offering, usually referred to as your ICP (Ideal Customer Profile). Note: Just because you have identified the most advantageous customer for your business does not mean that you neglect the other groups. However, you now know which groups to prioritize and focus on as your baseline. Your baseline group should also serve as a control group of sorts. If they do not engage with your journey at any point, then you know that you have internal issues to work out.

Step five: Engagement and personalization

Now that you have a user journey you are confident as well as a control group of baseline users to count on, you can work towards becoming more engaging to greater amounts of people. You can also work on personalizing the journey for customers who deserve an extraordinary amount of priority. What are your optimization points? Can they be replicated so as to engage more users and greater numbers of users? Can you add engagement points at more difficult times in the journey to keep less enthusiastic people on board?

Step six: Measurement and reporting

During every step in the process, you should be measuring and reporting back your results. The formation of a user journey is iterative in nature; that is, once you get to the end, you circle back and start over with the experience of the previous journey informing your future endeavor. So even though measurement and reporting is at the end of this article, it should actually take place throughout the creation of the customer journey. Take special note of the points of greatest improvement and disappointment. Now is the time that you can begin to replace all of your assumptions with hard data for better results down the line.

If you need help with this process, Coho AI can help you automate the mapping of your user journey, identify your weak spots and set up your new engagement. automations for optimization.

In short, we help you color your map inside the lines, which can greatly shorten the timeframe in which you create your user journey. And the sooner you get your journey created, the more quickly you could begin to assess your target audience and bring in the hard data that will inform your relationship with them for years to come. Contact us to learn more!

Introducing Coho AI – Helping you optimize your conversion funnels and customer journeys

September 12, 2022

by Lihi Lotker Customer journey Product-led growth

The B2B SaaS world is changing

Different product-led growth strategies in the B2B SaaS world have revolutionized how businesses acquire new customers and retain existing ones. These companies now have the ability to bring thousands of users each month, and offer free plans to let users experience the product’s value before they even have to purchase.

But this also brings different challenges, as these companies often face various gaps in the user journey, especially when dealing with the user journey towards conversion along the funnel and upselling to customers. Fixing these gaps can lead to more revenue.

This is where Coho AI comes in, offering insights based on the product’s usage data analysis. This can help you convert new or free users to paid users, as well as giving the GTM teams the tools they need to know who to focus on next for upsell, expansion and cross sell opportunities.

Think of it like weaponizing your company to help you achieve more revenue growth and optimize the user journey experience.

Scaling product-led growth strategies

The number of companies adopting product-led growth strategies has steadily increased since the early 2000s. The three main features of product-led growth strategies are:

Designing products for the user
Creating products with a go-to-market objective
Solving the user’s immediate problem

Scaling your product-led growth strategies requires that you have full visibility of the user journey. This will allow you to understand how your clients are using your products and how you can enhance the user experience.

Coho AI can help you scale your product-led growth strategies by giving you full visibility. We can also assist you in analyzing your user data to understand their behavior. This will enable you to get critical insights on how to:

Create user journeys that lead to more engagements
Tailor the user journey to drive up self-service conversions
Reduce churn and uncover key upsell potential
Get relevant product-qualified leads

Effectively scaling your product-led growth strategies requires identifying where gaps exist in your user journeys. For instance, you may find that users are not moving down the funnel. Such challenges are easy to solve if you have complete visibility of the user journey.

You need to understand that user needs are constantly changing. Thus, insights will change, and you will need to analyze user data continuously. This will help you understand how to appeal to users and what problems you can help them solve.

Your current product-led growth strategies may be working just fine. The Coho AI platform gives you full visibility of the user journey, which can help you grow your company’s revenue.

Identify problems that needs solving

The best way to identify problems that need solving is through data analysis. But data analysis is a lengthy and continuous process that requires a lot of resources. You have to conduct data analysis on various types of data, including:

Product data
User data
Communication data

Coho AI’s solution will help you save time on building an internal solution and will enable you to get a fresh analysis every time you need it. Keeping you up-to-date on the latest trends and insights within your product and getting real-time analysis on various opportunities and issues at different stages of the user journey.

Our platform can help you identify issues you didn’t know existed and suggest new ways to enhance the user journey and increase your revenue. For instance, we can:

Map your user journey and show you the conversion rate along it
Prioritize which customers are good upsell and expansion opportunities
Identify which accounts might be at a churn risk and need a save

Partner With Coho AI Today

Making use of the product-led growth model requires that you understand the user journey. The only way to do this is through continuous data analysis to understand all strengths and weaknesses in your user journey. Coho AI will help you shorten this process and get all the insights you need to improve your journeys and focus on the right customers. Further, whenever you identify what works, you can add automations that will help you move users down the funnel.