What’s More Important, New Customers or Retention? It’s a Trick Question

Q: What is more important, getting new customers or customer retention?

It’s a trick question of course — the crazy high net negative churn of top SaaS companies means that of course retention matters more than new customers.  If you have 140% net revene retention at say $100m ARR and want to grow 50% that year … well, 80% of that growth will come from your base and existing customers!

73% of Salesforce’s new bookings coming from its existing customers, for example.  More on that here.

And yet … there’s no point in doing customer retention if you don’t have enough customers ?

So in the early days, retention alone only gets you so far.  But ultimately, things change. As most SaaS companies scale, their existing customers often end up accounting for the majority of their revenue growth.

Obviously this can’t be the case the first few years. But it’s often the case as you approach $100m ARR, or even well before.

Let’s take PagerDuty as another example. When they IPO’d, they were growing 48% Year-over-Year. With 139% Net Retention Rate. That means the majority of their new bookings were from existing customers …

That’s not uncommon at scale in SaaS when your net revenue retention is that high.

Of course, you need new customers to fuel that engine. But the maths say at scale, customer retention is more important than new customers. Even though we tend to do actually do the opposite in terms of how many resources we deploy …

More here: 5 Interesting Learnings From PagerDuty. And Congrats on the A+ IPO!! | SaaStr.