Continuously Innovating and Upping CX
The Acronym Soup Series—Making sense of:
NPS, EGR or NPS 3.0 (NPS, Realtime Referrals, Tracking Referral NRR), CES, OSAT, CSAT, PSAT, PMF, and PE𝛿4
3—NRR and NDR will always be relevant

In the rapidly modernizing B2B landscape, continuously enhancing customer experience (CX) is becoming increasingly crucial.

  • Beyond Conventional Metrics: Companies increasingly recognize that conventional and standard metrics alone are no longer sufficient.
  • Attitudinal and Behavioral data: You cannot just choose between either attitudinal or behavioral data; combining the two becomes essential.
  • Multi-segmentation Models: Companies further demand a move beyond singular and conventional segmentation methods to fully grasp user diversity and needs. We will cover that in another article.

To provide a more comprehensive view of CX and drive strategic decision-making, this article explores the integration of conventional lagging metrics with newer advanced metrics

Conventional lagging metrics

  • Net Promoter Score (NPS),
  • Customer Health (CH),
  • Net Revenue Retention (NRR),
  • Customer satisfaction (CSAT),
  • Partner satisfaction (PSAT), and
  • Customer Effort Score (CES)

Newer advanced metrics

  • Product Market Fit (PMF),
  • Product Efficiency Delta 4 (PE𝛿4 or 𝛿4),
  • NPS Promoter Referrals
  • Referral NRR Tracking
  • Earned Growth Rate (EGR) or NPS 3.0

When Snowflake's NRR dropped by 47% — and the CEO exited — many wondered if the NRR drop was one of the reasons. Note, 131% NRR is significant and high, but Snowflake's NRR Rate in FY22 Q4 was an industry-leading 178%.

"Snowflake's NRR drops 47% — Is NRR still relevant?" — YES

Although, the quarter lower guidance may have been the really reason for the significant market cap drop. Putting th 47% NRR drop in perspective, the median NRR across businesses dropped 10%.

The median NRR dropped by 10%

Revenue Metrics for Customer-Facing Teams

Let's start by saying GRR and NRR are CFO and CRO metrics and GDR and NDR are CFO metrics.

NDR is NRR expressed in US dollars. What rate is used to do the conversion differs.

Further, a global CCO / CRO may also care about NDR, but perhaps a simplified version, known as Constant Currency NDR.

A Global CFO would prefer a transactional-level NDR or an NDR based on daily conversion rate.

Here is a quick recap of GRR, NRR, and how it compares to NDR, from my previous in-depth article.

GRR

Gross Revenue Retention (GRR) is the revenue at the beginning of the period minus the churn at the end of the period, where churn includes cancellations or logo or customer churn and downgrades or revenue churn.

Revenue churn occurs when the customer stays but pays you less. Logo or customer churn happens when the customer leaves and doesn't renew.

GRR is equal to the starting revenue minus all churn in a period.

GRR waterfall
GRR waterfall
GRR definition
GRR = starting revenue - cancellations - downgrades in a period

If the revenue at the end of June was $4M and customer and revenue churn in July was $300K and $200K,

GRR for July = $4M - $300K - $200K = $3.5M.

Gross Revenue Retention Rate

Gross Revenue Retention Rate is the revenue at the beginning of the period minus the customer and revenue churn at the end of the period, divided by the revenue at the beginning of the period.

GRR Rate is the ratio of GRR and starting revenue
GRR Rate = GRR / starting revenue
GRR Rate = (starting revenue - customer churn - revenue churn) / starting revenue
GRR Rate = (starting revenue - customer churn - revenue churn) / starting revenue

Continuing with our example, if the revenue at the end of June was $4M and customer and revenue churn in July was $300K and $700K,

GRR Rate = ($4M - $300K - $200K) / 4M = 3.5/4 = 87.5%

Net Revenue Retention

Net Revenue Retention (NRR) is the revenue at the beginning of the period minus all the churn (customer and revenue churn) plus all the expansion revenue (upsells or upgrades, cross-sells, and add-ons) in the period.

NRR expressed as a dollar value is the starting revenue minus all the churn plus the expansion revenue for a given period
NRR expressed as a dollar value is the starting revenue minus all the churn plus the expansion revenue for a given period
NRR in terms of GRR is:

NRR = GRR + expansion revenue in period.
NRR Waterfall
NRR waterfall — NRR is starting revenue - churn + expansion for period

Continuing with our example, if the revenue at the end of June was $4M, customer churn in July was $300K, revenue churn was $200K, and upsells, cross-sells, and add-ons were $600K, $300K, and $100K respectively,

NRR = $4M - $300K - $200K + $600K + $300K + $100K = $4.5M.

Net Revenue Retention Rate

Net Revenue Retention Rate is the revenue at the beginning of the period minus the customer and revenue churn plus the upsells or upgrades, cross-sells, and add-ons at the end of the period divided by the beginning revenue.

NRR Rate = (starting revenue - customer churn - revenue churn + upsells + cross-sells + add-ons) / starting revenue
NRR Rate = (starting revenue - customer churn - revenue churn + upsells + cross-sells + add-ons) / starting revenue
NRR Rate is the ratio of starting revenue minus churn plus expansion and the starting revenue, for a given period
NRR Rate is the ratio of starting revenue minus churn plus expansion and the starting revenue, for a given period

NRR Rate = (GRR + upsells + cross-sells + add-ons) / starting revenue

Continuing with our example, if the revenue at the end of June was $4M, customer churn in July was $300K, revenue churn was $200K, and upsells, cross-sells, and add-ons were $600K, $300K, and $100K respectively,

NRR Rate = ($4M - $300K - $200K + $600K + $300K + $100K)/$4M = 112.5 % or 1.125

Gross Dollar Retention

Gross Dollar Retention (GDR) is the starting revenue converted to dollars minus the churn converted to dollars both based on the actual exchange rates.

GDR is same as GRR with numbers converted to dollars based on currency rates.
GDR is same as GRR with numbers converted to dollars based on currency rates.

Gross Dollar Retention (GDR) is the starting revenue converted to dollars minus the churn converted to dollars, divided by the starting revenue in dollars, for a given period.

It is the same as the GRR rate, with the difference that all calculations are done in US dollars and it accommodate currency fluctuations.

GDR and GRR differences, i.e., accommodating for currency exchange and fluctuations, are highlighted in S-1 and 10-K reports by public companies. For, customer success, they are the practically same.

GDR Rate is same as GRR rate except it uses US dollar based calculations and it accommodates actual currency rate fluctuations
GDR Rate is same as GRR rate except it uses US dollar based calculations and it accommodates actual currency rate fluctuations

Net Dollar Retention

Net Dollar Retention (NDR) is the starting revenue in dollars at the beginning of the period, minus the customer and revenue churn in dollars, plus the upsells or upgrades, cross-sells, and add-ons in dollars. It is essential to highlight that revenue, churn, and expansion are converted into US dollars to accommodate currency translation and exchange rate fluctuations. That is how NDR differs from NRR.

For Customer Success and a SaaS metric to measure and track, Net Dollar Retention (NDR) is the same as Net Revenue Retention (NRR). However, your book-keeping professional obviously will have a different opinion.

For Customer Success Net Dollar Retention (NDR) is the same as Net Revenue Retention (NRR). Your book-keeping professional obviously will have a different opinion.
Net Dollar Retention is starting revenue minus all churn plus all expansion revenue for a period, with all values converted to dollars to accommodate currency translation and exchange rates.
Net Dollar Retention is starting revenue minus all churn plus all expansion revenue for a period, with all values converted to dollars to accommodate currency translation and exchange rates.

NRR Rate = NRR / starting revenue (all converted to dollars)

NDR rate is the ratio of NRR and starting revenue, taking into account day-to-day currency fluctuations exchange rates.
NDR rate is the ratio of NRR and starting revenue, taking into account day-to-day currency fluctuations exchange rates.

To further illustrate the point, if the revenue at the end of June was $4M, customer churn in July was $300K, revenue churn was $200K, and expansion reveue was as follows:

  • upsell of £217.38 with pound to dollar exchange rate of 1.38
  • upsell of $100K
  • upsell of ¥11,111K with Yen to Dollar conversion rate of 1/111
  • upsell of £71K with pound to dollar exchange rate of 1.41
  • cross-sell of $300K
  • add-on of $100K

NDR = $4M - $300K - $200K + (217.38K x 1.38 + 100K + 11,111K / 111 + 71K x 1.41) + $300K + $100K

NDR = $4,500,193

NDR rate = 112.5048%

Constant Currency NDR

NDR may use a fixed exchange rate in certain cases to remove the impact of foreign currency translations. It is then differentiated as Constant Currency Dollar-Based NRR or Constant Currency NDR or Constant Currency Dollar-Based Net Expansion Rate (e.g. Agora.io S-1).

In the above example using a constant currency rate of 1.4 for pound to dollar,

Contant Currency NDR = $4M - $300K - $200K + (217.38K x 1.4 + 100K + 11,111K / 111 + 71K x 1.4) + $300K + $100K

Contant Currency NDR = $4,508,831

Contant Currency NDR rate = $4,508,831 / $4M = 112.72%

Outro

NRR is a non-financial metric for customer facing execs, for example, for the CCO and CRO.

[Constant Currency] NDR is a metric that a Global CCO or CRO would care more about.

A Variable Currency NDR is something a CFO would care about as is the most accurate representation. the conversion to NDR may be based on a daily average or transactional.

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Laura McCarthy
VP Customer Success and Services
Pure Storage

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