Switching from Gross to Net Retention with 2nd product launch

Jenny Leman

If you've been part of an org that launched a 2nd product, I'm very interested in picking your brain!   

Here are a few questions that I'm noodling on:

• What challenges did you incur when switching from Gross to Net retention?  What specifics did you have to solve for?
• Did your org view this as two separate subscriptions, recurring on different intervals/amounts?   Or roll up both products into one subscription amount?   *The trick for my team is that pricing for Product #2 will be on a very different unit type than for Product #1.  So we may end up with different billing intervals.  
• How did your org go about setting new sales quotas vs cross-selling goals?  
• How are you tracking Net Retention performance?  Especially with a product that may have a monthly billing cadence and no terms (ability to downgrade and reupgrade as needed)?   
• Have any of you launched a 2nd product on a freemium model?

I'd love to chat or discuss via this thread.  Thank you so much for your input in advance!  

Andy Barton

Hi @Jenny Leman Interesting (I mean a 2nd product that has little relation to the existing one) 

I will answer in order and provide some extra points at the end... 

• Firstly we didn't change focus from Gross, to Net, so I would make sure that CS mindset still has laser focus on Gross, but imbed playbooks for positioning upsell. I would give the CSMs a volume (not ARR) target to position or run the new product playbook (demo or a couple of slides on next review call). ie. Lead gen / qualification. Then pass the good ones to sales (if separate), or follow up if CS also sell.
• If the products are clearly separate and priced / billed differently, I would have them in a separate subscription.
• full go to market prep for a new product is going to be a bigger investment if you are selling to new customers from day 1. I would start by having a focus on cross selling in a pilot phase, and then launch for new customers. If the same sales team sell to new logos and expansion then start by ensuring the new product gives the same quota relief at least, perhaps with a spiff for selling the new product. If different sales teams, then I would weight more to the team cross selling.
• Total Account net retention / Q (starting and exit ARR) -- and not subscription net retention.
• I feel the last Q widens the scope of the topic hugely... you can consider once the customer goes premium, that its a new product and falls in above. Phase 1 free can be the pilot. Target usage/adoption in trusted existing customers. push to cross sell/premium when functionality added or a level maturity achieved to justify charging. 

Andy

John Henwood

I agree with @Andy Barton in that the gross vs net isn't necessarily a must-do activity as part of this addition of a 2nd product. My guess is you're considering this as a way to factor in the broader picture of the account growth/contraction with multiple products and pricing models in play.
With that said, you need both metrics because net retention alone isn't actionable - you'll need its components too, so it's more a broader question of how do we calculate performance in a multi-product and subscription environment.

I also agree that if the products are separate entities with separate models, you have to treat them as separate subscriptions. With different billing cycles, you're likely going to have nuanced expectations and targets for each product anyway and will need to communicate performance to the business to show performance by product. You'll want to align the way you calculate the retention number (gross and net) in the same way so you have as much of an apples to apples comparison.  There's numerous ways to calculate retention, but the most "purist" way is cohorted,i.e. customers renewing in a period. This opposed to how many look at it which is % retained in period / starting ARR in period.  You will also want/need to break this down by product anyway.

Without knowing the details here, it feels like you'd have your core gross/net retention metrics at an account level, spanning all products to give you 1 set of performance indicators to report at the highest level, then also have a breakdown of gross/net by each of the product lines.

As a side note, to illustrate the varying ways companies are calculating their Net Retention, you can see this list of publicly traded companies and their calculations.

John