NRR measures the ability of a business to expand revenue over time. It’s only really useful if the company sells multiple products or one of them has some sort of usage based scaling factor that implies customers use it more over time.
One of the misleading ways to look at NRR is when there is a single product that is usage based and scales with the growth of their customers. If the customers growth stops due to an economic condition outside of anyone’s control the NRR becomes stagnant or lower than 100%. All that measures is the growth of the economy rather than the effectiveness of the business.
See also:
- Post zero interest rate policy (ZIRP) a lot of NRR probably looks bad
- B2B benchmarks
Links to this note
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Four Levels of Product Market Fit
First Round Capital has a helpful guide to product market fit that helps to orient founders so they can focus on the right things. Rather than a binary, yes/no, evaluation of product market fit, the guide discusses different levels.