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Gross Revenue Retention (GRR)
Gross Revenue Retention (GRR) Overview
Alternative Name: Gross Dollar Retention (GDR)
Definition
Gross Revenue Retention (GRR), also known as Gross Dollar Retention (GDR) measures the percentage of recurring revenue that is retained over a specific period of time. GRR captures lost recurring revenue due to customers leaving or lowering their usage commitments.
By contrast, Net Revenue Retention (NRR) includes expansion revenue, while GRR only includes the effects of churned customers or lower revenue (down-sell) from existing customers.
Business Value and Insights
GRR is a critical SaaS metric because it directly measures the stability of a SaaS business's revenue. SaaS businesses with high GRR are more predictable and have higher growth potential because churn is not a significant drain on revenue.
Customer churn, is the primary driver to lower and reduce GRR to the downside. Companies with high GRR tend to have both low levels of customer churn and healthy expansion revenue from existing customers. GRR will always be less than 100% as it does not include up-sell, cross-sell or usage expansion from existing customers.
Calculation Formula(s)
CALCULATION FORMULA:
Adjusted MRR* from the cohort of customers at the end of the period
MRR at the beginning of the measurement period
The cohort method is the most accurate way to measure GRR and is the preferred approach in most situations. The cohort method compares the recurring revenue of a specific group of customers over time.
Calculating GRR based on the cohort method is straightforward. As shown in the table below, the MRR for active customers from one year ago is in the first column. The current month’s MRR for those same customers is in column two. The third column, the “Adjusted MRR,” is simply the lesser of the beginning MRR or the current month's MRR. That adjustment mathematically eliminates expansion revenue while capturing shrinkage and churn.
For this calculation, it’s important to use recognized revenue and not bookings, billings, or cash accounting.
SaaS companies with enterprise customers, longer contracts and implementation cycles can also use Annual Recurring Revenue (ARR) or Contracted ARR (CARR). If using CARR, the metric will capture churn that occurs during the implementation cycle and before revenue is recognized.
*Adjusted MRR is the lesser of the beginning MRR or the current month's MRR. This technique mathematically eliminates expansion revenue while capturing shrinkage and churn
Data Inputs Required
Data Input #1: MRR by customer at the beginning of the measurement period
Data Input #2: Adjusted MRR* for that same group of customers at the end of the period.
*Adjusted MRR is the lesser of the beginning MRR or the current month's MRR. This technique mathematically eliminates expansion revenue while capturing shrinkage and churn
The revenue recognition schedule contains most MRR data, and CARR might be found in the CRM or contract management system.
Sample Calculation
Customers on
3/1/2021
Beginning MRR
March 2021
Ending MRR
March 2022
Adjusted MRR
March 2022*
Customer 1
$100.00
$200.00
$100.00
Customer 2
$200.00
$200.00
$200.00
Customer 3
$500.00
$ -
$ -
Customer 4
Customer 5
Customer 6
Customer 7
$200.00
$300.00
$1,000.00
$300.00
$500.00
$1,500.00
$200.00
$900.00
$200.00
$1,000.00
$200.00
$500.00
Customer 8
$1,200.00
$1,200.00
$1,200.00
Customer 9
$400.00
$600.00
$400.00
Customer 10
Total MRR
$ 5,000.00
$600.00
$ -
$5,100.00
$ 3,800.00
$ -
Net Revenue Retention
102%
Gross Revenue Retention
76%
*Adjusted MRR is the lesser of Beginning or Ending MRR.
In the above sample calculation, some customers churned, some contracted, and some expanded; however, the GRR calculation only adjusts for contraction and churn.
GRR can never exceed 100%
Calculation Timing
The time period between the beginning MRR and ending MRR (for the same set of customers) is typically one year. Using GRR as an annual measurement is the most intuitive and easy to benchmark.
If the calculation period is less than one year, it can be annualized by taking the result to the appropriate power. For example, if measured over a quarter, take the result to the 4th power, and if measured over a month, take the result to the 12th power.
Generally speaking, longer measurement periods yield the best results for long sales-cycle companies with larger annual or multi-year contracts, and shorter measurement periods are a better fit for companies with smaller contract values and shorter sales cycles.
Regardless of the measurement period, the metric is typically calculated monthly on a rolling basis.
Nuances To Consider
Nuance #1: The cohort approach is considered more accurate than the formula approach, whose deficiencies are outlined below.
Nuance #2: When using MRR, the cohort approach does not require separate tracking of revenue contraction or churn; it is embedded in the Adjusted Ending MRR.
Nuance #3: Revenue recognition accelerated due to a canceled contract should not be included in the beginning or ending MRR.
Nuance #4: Most companies define a “win-back” period of 30 - 90 days. If a churned customer renews within the win-back period, the resulting revenue is counted as a renewal and not a new sale.
Nuance #5: Using Contracted ARR (CARR) instead of MRR captures the churn of customers who cancel after signing their contract but before implementation is complete and revenue is recognized. This is a useful measure for companies with long implementation cycles.
Nuance #6: We recommend excluding variable revenue from usage-based pricing in the GRR calculation. GRR would capture the downside of variable "Usage-Based Revenue" and is not particularly helpful in understanding overall retention trends.
Nuance #7:The cohort approach's main drawbacks are: 1) It does not capture the retention performance of recently acquired customerand; 2) It may not be helpful for a new business with few or no customers older than one year
Links to related standards
Contracted ARR (CARR) Standard: Click here
Annual Recurring Revenue (ARR) Standard: Click here
Net Revenue Retention (NRR) Standard: Click here