Drawing Lessons from a Metric: Net Revenue Retention

As an avid tech stock investor over the years, I remember coming across Net Revenue Retention (NRR) as a metric that often appeared in investor reports and earnings calls, especially for SaaS companies with a solid base of recurring subscription revenue.

Net Revenue Retention (or Net Dollar Retention) measures the growth and retention of revenue from existing customers over a specific period. NRR reflects how much revenue a company retains and expands from its customer base, accounting for upgrades, downgrades, and churn.

The best tech stocks belonged to companies that consistently hit over 100% NRR. In other words, they expanded the revenue of existing customers each year, allowing them to start at a higher revenue base. Each new customer then contributed to year-over-year revenue growth.

At my agency Barrel, we paid lip service to the importance of client retention, but measured it more in terms of client relationship duration rather than revenue retained over time. For example, we patted ourselves on the back for keeping a client for 5+ years, even though their spending had peaked in year 3 and had been declining for the past two years.

Part of this was structural. We led with larger website redesign or replatforming projects as our initial engagement with clients. Budgets for these projects were much larger relative to any follow-on work. For example, a website project could be $300,000+, followed by ongoing support and maintenance at $5,000 to $15,000 per month. Some clients opted to bring ongoing work in-house, reducing our involvement or leading to complete churn.

This business model meant that even with a substantial number of support and maintenance retainers, we had to push hard each year to replace the revenue from larger website projects. When times were good, we were flush with major projects that kept the team busy. But if we fell short by even a few projects, we could quickly find ourselves facing flat or declining year-over-year revenue.

When we took time to calculate Barrel’s NRR, it was often in the 50-60% range.

A few years ago, we spun out about twenty client contracts from Barrel that no longer fit our evolving ICP, and established a new web agency focused on ongoing support and maintenance. We named it Vaulted Oak, and from the start, it was set up to take on only recurring revenue engagements. While much smaller than Barrel, we immediately saw that Vaulted Oak benefitted from very strong NRR dynamics.

Many of Vaulted Oak’s clients maintained steady spending levels each year, and some even increased their spend. Vaulted Oak’s NRR was over 100%, which meant far less pressure to land new clients. Vaulted Oak became selective about new clients – passing on one-off short-term work and focusing only on clients seeking long-term web support partnerships.

With these insights, we realized Barrel needed a business model makeover.

Rather than leading solely with website redesign and replatforming projects, we evolved our pitch to emphasize long-term relationships centered around website optimization and digital marketing support.

We came to believe that these redesigned services better reflected our ability to deliver maximum value for our clients. Instead of requiring large upfront budgets for a big redesign push, we often began client relationships with audits and roadmapping workshops that guided the next few quarters of work.

This new approach has allowed us to move away from big one-time projects and start every client conversation with how we can positively impact their business over the coming years through ongoing collaboration. It has also required us to become more intimately knowledgeable about our clients’ businesses, enabling us to provide more valuable and strategic services.

We also learned that it wasn’t necessary to force clients into a recurring revenue contract. Some clients preferred to sign multiple fixed-fee projects over the course of the year. By structuring regular strategy and roadmapping workshops, we’ve been able to win these types of projects with greater predictability.

Net Revenue Retention has been a useful metric for seeing what’s possible when you prioritize and work towards long-term relationships. By shifting our focus to delivering consistent value and aligning our services with clients’ evolving needs, we’ve laid the groundwork for more predictable and sustainable growth. This transformation not only strengthens our client partnerships but also positions Barrel to significantly improve its NRR in the coming years. Ultimately, the lesson for us—and for any service-oriented business—is clear: prioritize retention and growth within your existing relationships, and you’ll build a foundation that ensures both resilience and success.