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NRR Must Be A Marketing Imperative: Part 1 in the Series
Marketing Must Catch Up With the New Realities:
Leverage Marketing’s Win/Loss Framework to Accelerate Your Career
Part 1 in the Series: NRR Must Be A Marketing Imperative
You are a modern marketer working in the subscription economy. Whether your firm embraced recurring revenue from the start or if the transition is in progress, there is undoubtedly awareness that the old mantra of hunting for mega-deals is being (has been?) replaced with a land-and-expand strategy for customer acquisition.
What’s more, since customers are in the position to more easily switch providers, fewer are the days of “lock in”, and there is growing recognition that Net Dollar/Revenue Retention (NDR/NRR) is a critical “north-star” metric (if you’re not already familiar with NRR, some excellent content on the why and how of NRR is here and here). Why? Because NRR has a strong relationship to company valuation: Higher NRR leads to higher multiples, making higher returns for every shareholder.
In other words, companies need to move to a model of always-on selling, not just a single “sales event.” But has your Marketing work caught up with the new realities of how customers want to buy?
Put another way, change is afoot. Change always represents an opportunity. NRR includes 2 key components:
- Amount of revenue coming from “retention” of existing customers (that is, the amount of revenue renewed from customers’ subscriptions for the measurement time period), and
- The amount of “expansion” revenue coming from your existing customers. Since the modern selling motion aligns with how customers want to buy, starting small and growing the subscription bookings from an existing account through up-sell and cross-sell motions becomes a critical component of NRR. Dave Kellogg sums it up well, “While “it’s the annuity, stupid” has always been the core valuation driver for SaaS businesses, in recent years we’ve realized that there’s only one thing better than a stream of equal payments – a stream of increasing payments.”
Knowing this, do you want to embrace the subscription economy and drive your strategic contribution to the company by growing NRR? The basics are the same: Companies need “leads” in order to drive more business, and it’s Marketing’s job to provide those leads. Those leads can come from 2 places:
- Net new customers/logos, and
- Opportunities from existing customers (you don’t really believe that an account is no longer part of your market after the initial purchase, right?)
With so much industry energy put into Account Based Marketing (ABM) we are forgetting something: Why oh why are we not helping the Account Managers/Customer Success Managers (CSM) teams with understanding the signals from existing accounts that will drive expansion revenue?
The math is out of scope for this article but it’s easy to see how small differences in retention and expansion rates can have massive impacts on company growth. Bottomline, if you can improve NRR – revenue from existing customers – then the compounding effects over time drive ever-increasing geometric (not linear) growth even with the same rate of net-new acquired logos.
We also know that acquiring new customers is more expensive than farming existing accounts, so what are YOU doing in your Marketing work to accelerate this opportunity? Are you pushing out un-targeted content that doesn’t directly address what you know (or, perhaps, what you should know – more on that in the next installment of this series, or ask me now) about the customer account? Growth rates are key to company valuation, and there is no penalty for picking the low-hanging fruit! We’ve all seen evidence to this fact, and in the book Marketing Metrics, the authors share a fascinating finding from their research:
So are you LISTENING to the signals from your existing customer in pursuit of NRR growth? Do you know where they are struggling, where they find differentiated success (outcomes), if they are advocating for you, or if they are spreading negative word-of-mouth?
If your version of Customer Marketing / Customer Advocacy is akin to sending non-targeted newsletters, hosting webinars or case stories with customer-speakers, or hosting a community then you are likely to be leaving a ton of NRR on the floor. Start by measuring NRR. And measure NRR accurately by reflecting the intended lifetime value of your solution: Of course you’re thinking that a customer should bring renewal revenue in year 2, year 3, and beyond, so if a customer churns after year 1 (and fails to renew in year 2), aren’t you actually losing year 2 and year 3 revenue from that customer-account?
In our next article in this series I’ll discuss more about WHAT and HOW to tune-in to those customer signals. I’ll dive into details around how to effectively engage existing customers to listen and action what they are trying to communicate with your firm. And I’ll show you the opportunity to accelerate your own career trajectory by raising your company’s valuation, to extend the mantra of “happy and successful” beyond your customers to you and your leadership team.