Gross Retention is a metric used in SaaS (Software as a Service) businesses to measure the percentage of customers that remain subscribed to a service over a given period of time. It is calculated by dividing the number of customers that remain subscribed at the end of a given period by the number of customers that were subscribed at the beginning of that same period, excluding any new customers that were acquired during that period.
The formula for calculating Gross Retention is as follows:
Gross Retention = ((CE-CN)/CS)) x 100
CE: Number of customers at the end of the period
CN: Number of new customers acquired during the period
CS: Number of customers at the start of the period
For example, if a SaaS company had 1,000 customers at the beginning of a quarter, and it ended the quarter with 950 customers, but also acquired 100 new customers during the quarter, the Gross Retention rate would be calculated as follows:
Gross Retention = ((950-100)/1000) x 100
Gross Retention = (850/1000) x 100
Gross Retention = 85%
This means that the SaaS company retained 85% of its customers during the quarter, and lost 15% of its customers due to factors such as churn (customers canceling their subscriptions), failed payments, or other reasons.
Gross Retention is an important metric for SaaS businesses to track, as it provides insights into the overall health of the business and can help identify areas for improvement. A high Gross Retention rate indicates that customers are satisfied with the service and are more likely to remain subscribed over time, while a low Gross Retention rate may indicate issues with the product, customer support, or other factors that need to be addressed.
