What it is: Gross retention, also known as gross dollar retention, measures the percentage of revenue a company can retain from existing customers. It is particularly relevant for subscription-based businesses, such as Software as a Service (SaaS), which rely on recurring revenue.
Why it is important: Gross retention is a key metric for assessing customer satisfaction, product value, and revenue stability in subscription-based models. It helps evaluate the effectiveness of customer retention efforts, the stickiness of the product or service, and the potential for revenue expansion through upselling or cross-selling. Monitoring gross retention enables startups to focus on customer success and reduce churn.
Formulas: Gross Retention = (Revenue from existing customers at the end of a period - Revenue from existing customers lost during the period) / Revenue from existing customers at the beginning of the period * 100.
How to use it in the context of startups: Startups with subscription-based business models should calculate and track gross retention to assess customer satisfaction and revenue stability. By focusing on improving gross retention, startups can reduce customer churn, increase customer lifetime value, and drive sustainable revenue growth.
