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Estd 4.22.2023
In the SaaS industry, retention metrics serve as critical indicators of business health and sustainability. While many executives focus primarily on revenue retention, logo retention provides equally valuable—but distinctly different—insights. Understanding both metrics and how to measure them effectively can substantially impact strategic decision-making and long-term growth trajectories.
The Fundamental Distinction
Logo retention refers to the percentage of customers (or "logos") that remain with your company over a specific period. This metric counts each customer equally, regardless of their spending level.
Revenue retention, on the other hand, measures the percentage of revenue maintained from your customer base over time, with particular attention to expansion, contraction, and churn.
Let's explore how to measure each effectively and why both matter for SaaS executives.
Measuring Logo Retention
The Basic Formula
Logo Retention Rate = (Number of customers at end of period / Number of customers at start of period) × 100%
For example, if you started January with 100 customers and ended with 90, your logo retention for January would be 90%.
Implementation Steps
Define Your Time Period: Monthly, quarterly, or annual measurements are standard, though the most insightful timeframe depends on your sales cycle and customer lifecycle.
Segment Your Customer Base: Break down retention by customer segments such as:
- Company size
- Industry vertical
- Product tier
- Acquisition channel
- Contract length
Account for New Customers: To get a true retention picture, exclude new customers acquired during your measurement period from your end-of-period count.
Track Cohorts Over Time: Group customers who joined during the same period (cohorts) and track their retention rates separately to identify trends.
According to a 2022 KeyBanc Capital Markets report, the median annual logo retention rate for SaaS companies is approximately 85%, with top-performing companies reaching over 90%.
Measuring Revenue Retention
Revenue retention comes in two important variations: Gross Revenue Retention (GRR) and Net Revenue Retention (NRR).
Gross Revenue Retention (GRR)
GRR = (Starting revenue - Revenue churn - Contraction) / Starting revenue × 100%
GRR specifically looks at revenue retained from existing customers, excluding any expansion revenue. It cannot exceed 100%.
Net Revenue Retention (NRR)
NRR = (Starting revenue - Revenue churn - Contraction + Expansion revenue) / Starting revenue × 100%
NRR includes expansion revenue, which allows it to exceed 100%—a key indicator of growth from your existing customer base.
Implementation Steps
Track All Revenue Changes: Set up systems to carefully monitor expansion (upsells, cross-sells), contraction (downgrades), and churn (cancellations).
Calculate Separately for Customer Segments: Similar to logo retention, segment analysis reveals where your revenue retention strengths and weaknesses lie.
Set Performance Benchmarks: According to OpenView Partners' 2023 SaaS Benchmarks report, elite SaaS companies achieve NRR above 120%, while the median hovers around 106%.
Examine Revenue Retention Trends: Month-over-month or quarter-over-quarter changes in retention rates often reveal early warning signs of problems—or opportunities.
Why Both Metrics Matter
Focusing on only one retention metric can lead to strategic blindspots:
Scenario 1: High Logo Retention, Low Revenue Retention
This suggests customers stay but downgrade their plans—potentially indicating:
- Pricing issues
- Feature adoption problems
- Value perception challenges
Scenario 2: Low Logo Retention, High Revenue Retention
This indicates smaller customers are leaving while larger ones are expanding—potentially signaling:
- Product-market fit issues with smaller segments
- Insufficient small-customer support
- Strong enterprise expansion opportunities
According to Bain & Company research, a 5% increase in customer retention can lead to a 25-95% increase in profits. However, the type of retention matters significantly for long-term growth forecasting.
Best Practices for Measuring Both Metrics
1. Implement Consistent Measurement Cadences
Set a regular schedule for measuring both logo and revenue retention—monthly, quarterly, and annually. This creates a reliable dataset for identifying trends.
2. Use Specialized SaaS Metrics Tools
Tools like ChartMogul, ProfitWell, and Baremetrics automate these calculations and provide visualization tools to track changes over time.
3. Link Retention to Customer Behaviors
Connect retention data with product usage metrics to understand which behaviors correlate with higher retention rates across both measures.
4. Develop Early Warning Systems
Create dashboards that flag accounts showing decreased usage or engagement—signs they may be at risk for non-renewal.
5. Align Team Incentives Appropriately
Consider which retention metric should drive compensation for customer success, sales, and product teams based on your growth strategy.
Taking Action Based on Retention Insights
Once you're effectively measuring both metrics, focus on targeted improvements:
For Logo Retention Issues:
- Enhance onboarding processes
- Develop better customer success touchpoints
- Create "quick win" experiences for new users
- Implement churn prediction models
For Revenue Retention Issues:
- Design tailored expansion paths for different customer segments
- Invest in usage-based pricing models
- Build customer health scores that incorporate product utilization
- Develop cross-sell opportunities aligned with customer objectives
Conclusion
Both logo and revenue retention metrics tell essential but different stories about your business health. Logo retention highlights customer satisfaction and product-market fit across your entire customer base, while revenue retention reveals your ability to grow accounts and deliver increasing value over time.
The most successful SaaS companies don't view these metrics in isolation but rather as complementary indicators that together provide a comprehensive view of retention health. By implementing robust measurement frameworks for both and understanding the relationship between them, executives can make more informed strategic decisions about everything from product development to customer success investments.
In today's competitive SaaS environment, companies that master the measurement and optimization of both logo and revenue retention gain a significant advantage in building sustainable, profitable growth.