As the manufacturing industry becomes more competitive, maintaining and growing revenue from existing customers is more critical than ever. In the struggle to acquire a steady flow of new customers, it's important not to overlook the significant revenue potential within your existing customer base.
This is where net revenue retention comes into play—a key metric that measures the revenue retained and expanded from current customers. But how can contract manufacturers ensure they retain and maximise revenue from their existing clients? The answer lies in RevOps.
Firstly, what is net revenue retention?
Though typically associated with SaaS businesses, net revenue retention is relevant to any business with a recurring revenue model, including partnership-driven B2B manufacturing companies with long-standing clients.
Stripe defines net revenue retention (NRR) as:
“... a metric that measures a company’s ability to retain revenue from existing customers over a specific period. NRR is a more comprehensive metric than gross revenue retention (GRR) or customer retention because it is influenced by changes in revenue from upsells, expansions, and lost revenue from customer churn.”
Source: Stripe
In contract manufacturing, NRR can be an important metric to track the growth or shrinkage of revenue from existing customers. It helps paint a picture of how well companies retain and expand their revenue base over time. By measuring NRR, contract manufacturers can gain insights into customer satisfaction, the effectiveness of their upselling or cross-selling strategies, and the overall health of their customer relationships.
How to calculate net revenue retention
NRR measures the percentage of recurring revenue retained from existing customers over a specific period, including any revenue expansion (upsells, cross-sells) and accounting for revenue churn (customer losses or contract reductions).
Here's how to work out NRR:
- Determine your starting Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR). This is the total recurring revenue from all your existing customers at the beginning of the period.
- Add Expansion Revenue. This includes additional revenue gained from existing customers through upsells, cross-sells, or price increases during the period.
- Subtract Churned Revenue. This is the revenue lost due to contracts ending or being reduced.
- Calculate the ending MRR/ARR. This is the customer revenue at the end of the period after accounting for churn, contract reductions, and expansions.
The ideal net revenue retention rate? Above 100% for enterprises and 90-100% for SMEs, according to Userpilot.
How can RevOps improve net revenue retention?
RevOps is an inherently customer-centric strategy that aligns and optimises processes across sales, marketing, and customer success teams for maximum customer retention and growth. Customer-orientated operations mean improved customer satisfaction throughout their lifecycle, giving contract manufacturers a competitive edge that increases net revenue retention. Here’s how:
1. Customer segmentation and targeting
RevOps can help sales and marketing departments segment customers based on, for example, the types of manufacturing services they use, such as PCB assembly, full box-build, or component supply. This ensures that marketing and sales efforts are focused on the right, high-value customers who are more likely to renew contracts or require additional services like custom tooling or engineering support.
2. Process optimisation
RevOps standardises and streamlines processes across the customer journey, rectifying gaps and inefficiencies in how customers and leads are managed. For instance, RevOps can automate the tracking of production schedules and material requirements, ensuring timely renewal reminders for ongoing production contracts and consistent project communication to customers, reducing the likelihood of customer churn.
3. Data-driven insights
By consolidating data from different departments, RevOps provides a comprehensive view of customer behaviour, enabling teams to identify customers at risk of churning and in need of a proactive customer retention strategy. For instance, if data indicates reduced ordering from a major customer, the customer success team can engage them by offering a review of their requirements or introducing them to additional services like rapid prototyping to reignite their interest.
4. Team alignment
By fostering cross-team collaboration, RevOps ensures all teams are aligned towards the shared goal of maximising NRR. This helps them create consistent messaging and customer experiences that retain customers and encourage them to expand their business. For example, if a customer wants to scale up production, the sales team can work with engineering to assess feasibility, while customer success provides a tailored support plan, creating a seamless experience.
5. Enhanced customer experience
Customer loyalty and satisfaction are key drivers of NRR. Businesses can further improve the customer experience by using RevOps to optimise the entire customer journey, from acquisition to renewal. This includes providing after-sales support and technical assistance throughout a contract's lifecycle and giving customer success the resources and oversight it needs to keep customers engaged long-term.
6. Performance tracking and KPIs
A RevOps framework can help define and track the KPIs related to customer retention and expansion, such as on-time delivery rates, defect rates, and customer satisfaction scores, to ensure that an organisation is on track to meeting its NRR goals. Companies should monitor these to identify areas for improvement or where additional resources are needed to support customer retention and upsell efforts.
7. Facilitating upsell and cross-sell opportunities
RevOps can identify and analyse customer data patterns to identify opportunities to offer additional services, such as moving from simple assembly services to providing full turnkey solutions. By integrating these insights into the sales and customer success workflows, RevOps can facilitate cross-selling additional value-added services like supply chain management, thereby increasing the overall contract value and net revenue retention.
8. Feedback loops and continuous improvement
RevOps ensures that feedback from customer interactions is captured, analysed, and used to refine products, services, and customer engagement strategies. For example, if customers indicate that they require faster turnaround times or more detailed quality reports, this feedback can be used to improve internal processes or offer new service tiers, directly contributing to better NRR by more effectively addressing customer needs.
Conclusion
Net revenue retention is a useful metric for gauging company health, giving contract manufacturers and other B2B businesses a comprehensive view of their growth trajectories. By embracing RevOps, businesses can drive better NRR by aligning processes, optimising operations, and focusing on customer-centric strategies.
With this unified approach to managing revenue across the entire customer lifecycle, RevOps ensures that every customer touchpoint is optimised to steadily increase your net revenue retention rate and improve your overall revenue growth.