Publications
Publications
- May 2024
- HBS Case Collection
Net Revenue Retention: Unpacking the Dynamics of Customer Monetization
By: Elie Ofek, Barak Libai and Eitan Muller
Abstract
Firms and investors alike are beginning to recognize the importance of tracking how revenues from existing customers are evolving over time and to appreciate the value in understanding what might explain changes in these revenues. Consequently, in addition to looking at measures such as the retention rate to assess customer base health, they have begun examining a quantity called Net Revenue Retention, or NRR, which measures the fraction (or percent) of revenues expected from a cohort of customers that were actually generated during the period. In this note, we formally define the NRR metric, show how it can be broken down to pinpoint the type of revenue changes taking place, i.e., in what way(s) existing customers are spending differently, and explain NRR’s potential role in guiding customer management decisions. The framework presented further highlights how knowledge of NRR can help avoid issues that arise when revenues from newly acquired customers are blended with those from existing customers, as well as how NRR relates to other customer management metrics, such as retention rate, CAC (customer acquisition cost) and CLV (customer lifetime value). The note provides several concrete examples to illustrate the main ideas presented and the relevance of NRR in practice.
Keywords
Citation
Ofek, Elie, Barak Libai, and Eitan Muller. "Net Revenue Retention: Unpacking the Dynamics of Customer Monetization." Harvard Business School Background Note 524-092, May 2024.