Gross Retention
Gross retention, also known as gross revenue retention or gross dollar retention, is a metric used to measure the total amount of recurring revenue that a business retains from existing customers over a specific period, typically on a monthly or annual basis.
The formula to calculate gross retention is:
Gross Retention = (Starting Recurring Revenue – Churned Recurring Revenue) / Starting Recurring Revenue
Starting Recurring Revenue refers to the total recurring revenue at the beginning of the period.
Churned Recurring Revenue represents the recurring revenue lost due to customer churn (cancellations, non-renewals, etc.) during the period.
Gross retention is usually expressed as a percentage. A higher gross retention rate indicates that the company is effectively retaining and expanding its existing customer base's revenue, which is a positive sign of customer satisfaction, product value, and potential for upselling or cross-selling additional products or services.
It's important to note that while gross retention provides valuable insights into customer revenue retention, it doesn't account for expansion revenue, which is revenue generated from upselling, cross-selling, or increasing subscription prices for existing customers. To get a more comprehensive view of a company's revenue growth, net revenue retention, which takes into account both churned revenue and expansion revenue, is often used.
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