Metric sales

Why NRR is probably the wrong baseline metric for your customer success team

Ok, this may seem like a strange article on SaaStr. We’ve been talking about the power of compound and recurring revenue for 10 years. Even back when it wasn’t really well understood. Our second SaaS blog post, in 2012 (subsequently updated) was “Want to understand SaaS? If there’s nothing else – Understand it’s getting complicated”, after all.

And we religiously follow the NRR of all public cloud and SaaS leaders in our series 5 interesting learnings. It’s the epic NRR that has powered UiPath, Twilio, Snowflake, and so many other cloud leaders.

A high NRR is the key to the magic of SaaS. It’s the engine that lasts for decades and fuels growth at far greater levels than you might even have imagined at first.

So don’t get me wrong – NRR is one of the top 3 metrics for any SaaS business. For sure. 100%. Low NRR is a flag, a canary in the coal mine. And a high NRR is a giveaway. But – this is one that is best not overlooked.

That’s right – should you measure your CS team on this? I’m not so sure anymore. Especially after interviewing over 50 Customer Success Managers over the past few years.

Why not? I found a trait in so many CS managers. Not VPs, but ICs and some managers. Many of them are – lazy. Literally the laziest of anyone I’ve spoken to. Lazier than almost anyone in sales, even those who really only work 20 hours a week. More lazy than smart engineers who phone him a bit. These are the laziest ICs in SaaS.

I mean, really lazy:

  • They don’t want to own anything. They often have very low exposure rates in their QBRs. I recently asked a mid-level CS rep how many of his customers show up to his QBRs. He said “one”. I asked him why just 1 came. He didn’t really know. But he said he thought QBRs were great.
  • They just wanna skydive and solve problems. Sounds good, but it’s not. It’s not remotely proactive. And that becomes an excuse not to do the real work before there is a problem.
  • They are often hard to reach and slow to react. Hmmm.
  • And above all – above all – they don’t sweat too much if the NRR goal is always achieved. Have you lost a few customers? Well, what if BigCo just added 1,000 more seats. This more than compensates.

Why is it?

I think these are just incentives. It is the objective and the KPI that you choose, and what you link the variable remuneration to. The thing is, in SaaS, if your product is good enough and has a strong market position, you’ll end up with a decent NRR, even with a mediocre Customer Success team. It’s true. And as your CS team scales, an individual Rep may not be able to influence the overall NRR as much.

In other words, a CS team can stop if the goal is 120% NRR and basically the product itself, along with the sales team, gets you there already sort of. I know many will disagree, but I see it all the time now. CS kind of wants to “get high” these days, and really doesn’t own anything. And coast on inherently high NRR.

Yes, you can set goals to increase NRR per segment and it kinda works. But that’s often still a murky goal, driven as much by sales as by success. And that doesn’t place retention as the #1 goal.

More and more, I think GRR should be the #1 goal for individual CS members. Your gross revenue retention – what percentage of a CSM’s revenue base has at the start of the year that you retain, before upgrades and growth. Or logo retention as a metric can also work, especially in B2D and other models that grow a lot over the year. And then… let NRR be an overall goal for the company and your VP of CS. Individual CSMs can influence retention and GRR much more than NRR. Their work becomes fair: Fair. Don’t. Lose. The consumer.

Watch GitLab. Yes, their NRR is strong at 152%. But their GRR is 95%. Now it’s even more epic – and the fuel for sustained growth. No one leaves GitLab. Nobody:

Go from NRR for your CSMs to GRR or Logo Retention, and keeping your customers becomes task #1. People simply work harder when their job is at stake if they lose too many customers.. And maybe not as hard as when the goal is kind of, sometimes… already in the bag.

Something to think about at least.

A little more here:

Is GRR more important than NRR? Most likely

And a great discussion Kyle Porter, CEO of Salesloft, and I had on GRR here:

Posted on April 28, 2022