Net Vs. Actual Retention

Net retention, the percentage of revenue retained from existing customers over time, is a crucial metric for assessing business health. It accounts for expansion revenue, churn revenue, and contraction revenue. However, net retention rate can be misleading.

Take the example here. Net retention is 105 percent, seemingly a good number. However, in this example we lost 20 thousand customers and gained 25 thousand new customers. So here we are simply acquiring new customers faster than we are losing them. But this approach is not sustainable in the long run.

Imagine retaining all your customers while continuing to acquire new customers. In this scenario, your net retention will soar well above 100%, reflecting true growth and stability. Focus not just on acquiring new customers but also on retaining your existing customer base. Don't let customer churn be your silent profit killer.