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Most SaaS companies approach their initial sales motion with a simple philosophy: Sell as much as possible to maximize ARR and quota attainment up front. While this approach might drive short-term revenue growth, it often undermines long-term value creation and can actually limit a company’s growth trajectory.
There are two clear paths that SaaS companies can take in how they approach new customer relationships:
Most companies default to Path 1 because it feels intuitive and aligns with traditional sales incentives. However, Path 2 creates a fundamentally different, and more valuable, business model.
The choice between these two approaches represents one of the most important strategic decisions SaaS leaders will make. Let’s talk about why.
The Nuances of Retention
The Purpose of Gross Revenue Retention (GRR)
Gross Revenue Retention (GRR) is a powerful indicator of the stability and engagement of the customer base and should not be overlooked. Many market participants take the view that GRR is one of the most important metrics a company can measure and manage.
- Starting ARR = Annual Recurring Revenue at the beginning of the period
- Churned ARR = Annualized revenue lost from customers who cancelled completely
- Contraction ARR = Annualized revenue lost from existing customers who reduced their spend but didn’t cancel completely
For example, if your starting ARR is $1.5M, your churned ARR is $100k, and your contraction ARR is $50k, your GRR would be ($1.5M – $100k – $50k) / $1.5M = 90%
If GRR is greater than 90%, the company is demonstrating consistent product adoption within the customer base and consistent renewals upon completion of the contract. Those facts also suggest that value realization is strong and the customer is satisfied. Don’t overlook GRR: it is critical to long-term success.
Understanding Net Revenue Retention (NRR)
Net Revenue Retention (NRR) measures what existing customers spend with you on a net basis at the end of year one, two, three, etc., of being a customer. NRR is calculated by taking the revenue from a cohort of customers at a point in time, then measuring what that same cohort is paying 12 months later. NRR accounts for expansion, contraction, and churn.
For example, if your customers that started with you in January 2024 initially paid you $1M, and one year later in January 2025, those customers now pay you $1.25M, your NRR would be 125%.
NRR has become a powerful indicator of the scalability of a SaaS business, and for good reason. NRR matters more than almost any other metric because it represents built-in growth, or growth that happens without acquiring a single new customer. NRR is the compound interest of the SaaS world.
Consider this: A company with 125% NRR can grow 25% annually without adding any new logos to its customer base. If it maintains consistent new customer acquisition on top of that expansion, its growth rate will remain excellent throughout the growth curve.
High NRR signals strong product-market fit, customer satisfaction, and a scalable GTM motion.
Here’s why that matters so much:
Predictable Growth Engine: Unlike new customer acquisition, which faces increasing competition and rising customer acquisition costs, expansion revenue comes from customers who already trust your solution and understand its value.
Improved Unit Economics: Expansion revenue typically has a much lower acquisition cost than new customers. There is very little sales and marketing cost to acquire revenue from existing customers who are already seeing value.
Competitive Moat: High NRR creates switching costs and deeper customer relationships. Customers using multiple products, or using the product across multiple teams, have higher switching costs and are more likely to view the company as a strategic partner rather than just a vendor.
Valuation Premium: Public SaaS companies with NRR above 120% consistently trade at higher revenue multiples than those below 110%. The market recognizes that high-NRR businesses are inherently more valuable and less risky.
In today’s environment, where new customer acquisition costs continue to rise and competitive landscapes intensify, companies with strong expansion engines have a significant competitive advantage.
How to Achieve 120%+ NRR: The Levers That Actually Work
1. Design for Modular Expansion
- Product Architecture: Build your product in modules that solve distinct problems
- Pricing & Packaging: Make it easy for customers to add modules as their needs evolve
- Value-Based Adoption: Each module should deliver clear, measurable value
2. Sell for Quick Time to Value, Not Maximum ARR
- Start Small: Sell only what the customer needs to succeed in the first 90 days
- Build Trust: Deliver on your promises and prove ROI before pushing more product
- Plan for Expansion: Work with the customer to map out future use cases and adoption milestones
- Reward the Right Behavior: Tailor your company incentive plan for sales reps to reward quick time to value and upsell over time
3. Drive Team-Based Expansion
- Identify New User Groups: Look for opportunities to expand usage across departments (e.g., marketing → sales → finance)
- Cross-Team Advocacy: Empower early adopters to champion the product to new teams
4. Proactive Account Management
- Align CSM’s Incentives: Provide Customer Success Managers (CSM’s) with opportunities to benefit from expansion wins
- Regular Health Checks: Monitor satisfaction and adoption to trigger appropriate triage
- Pre-configured Expansion Paths: Tailor upsell and cross-sell strategies to customer groups based on usage and problem set
5. Leverage Data-Driven Expansion
- Usage Analytics: Track feature adoption and usage patterns to identify expansion opportunities and churn risk; proactively engage with the customer based on data
- Feedback Loops: Continuously gather and act on customer feedback to improve the product and GTM strategy
6. Optimize Pricing and Packaging
- Natural Upsell Levers: Design pricing tiers that encourage customers to unlock more value as they grow
- Annual Price Increases: Build modest, predictable price increases into multi-year contracts
- Feature-Based Monetization: Monetize new features or premium versions to create expansion opportunities
The Compound Returns of High NRR
Companies that successfully build expansion engines with NRR above 120% create several compounding advantages:
Competitive Resilience: When economic conditions tighten or competition intensifies, companies with strong expansion engines are much more resilient. They have multiple revenue streams from each customer relationship and deeper integration into customer workflows.
Capital Efficiency: With built-in growth from existing customers, these companies can achieve profitable growth with less dependence on external capital or aggressive new customer acquisition spending.
Organizational Focus: Teams can focus on delivering exceptional customer outcomes rather than constantly scrambling to find new customers to replace churned revenue.
Multiple Expansion: High-NRR SaaS companies consistently trade at higher revenue multiples in public markets. The market recognizes that these businesses are more predictable, have stronger competitive moats, and require less capital to grow.
Final Thoughts
Building a system that delivers 120%+ NRR doesn’t happen by accident, and it certainly doesn’t happen overnight. It requires deliberate technology architecture, thoughtful product strategy, disciplined pricing and packaging decisions, and consistent execution over multiple years.
In the feature-rich SaaS landscape of 2025, where every company seems to be building platforms and all-in-one solutions, the temptation is to sell everything upfront. But, the companies that will create the most enterprise value are those that have the discipline to sell less initially and build systematic expansion over time.
The array of benefits—multiple expansion, predictable growth, improved efficiency, and competitive resilience—makes this one of the highest-ROI strategies a SaaS company can pursue. Invest the time now to reap the benefits of selling less, and expanding more, for years to come.
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