Most businesses are measuring NRR, but are unable to forecast accurately where those numbers are going to land each fiscal period.

That's where Customer Success can learn a lot from sales. Sales Teams have well-oiled processes for understanding their entire funnel. They always know where they stand and what their gap to target is. That's why they are able to communicate and take action early based on what's happening in real-time. 

It doesn't have to be different for CS.

In this issue, you will learn how to build a simple NRR forecast tool that will work whether you are on excel, in a CRM or use a CS platform. This tool can be used by CSMs and CS leaders alike. 

 📆 NRR Measuring Period

How often you measure NRR will depend on the volume of business you have renewing each month and your contract terms.

At HubSpot, for example, we do it monthly as we have thousands of contracts renewing monthly. But when I was in RetailInMotion, we did it quarterly as we had a few enterprise contracts renewing each quarter. 

Today, I will use a monthly forecast as an example, but you can adapt any of the templates to fit a quarter or yearly cadence.

💽 The Starting Data Set

NRR accounts for every movement of dollars in your current install base. That means you will need to look at both renewals and mid-contract changes that happen during your chosen period. 

The main categories you will need to forecast are:

1. Cancellations
2. Downgrades
3. Upgrades
4. Cross Sells

I built this forecast model to help you get started.

To start off you will need to be able to view a full list of customers, with their current MRR spend, broken down by product, and renewal month. 

Every column in green should be information you already have about customers. You can add all your products here by duplicating the columns relating to each.

If you are using a CRM or CS Platform, this should be a report of all customers, with a breakdown of their MRR per Product, and Renewal date. For this example, I am using a simple Spreadsheet.

🛠️ CSM Input 

For the bottom-up forecast, you want CSM's insight around renewals. The red columns are designed for CSMs to share the latest update on the renewal using standard statuses:

These statuses help managers guide CSMs through a forecast review exercise and ensure next steps are in place for each account renewing in the following period. The earlier you identify risk, the higher your chances to affect change. 

For the business, the visibility of status can be used in many ways: top accounts review, trend analysis etc.

If you are using a CRM the renewal status might be a property in the account, or a stage in the renewal deal pipeline.

The next step is to calculate the MRR impact of any changes.

• The Starting MRR column should be auto populated as the current total MRR the customer is spending right now.
• The MRR Change column is a field that CSMs manually fill out with the total difference between the existing contract and the new contract (eg. If the customer is upgrading tiers and their subscription will increase by $200, that's the amount the CSM adds there)  
• The New Forecastd MRR column is a formula calculating the new MRR the customer will have after they sign their renewal.

If you are using a CRM, the quote will carry MRR change information, and you should be able to extract the data to calculate NRR. You will likely need an advanced reporting calculation in the CRM to get to the NRR number, or to use a BI tool or spreadsheet.

In the example above, despite the dollar movement across the 3 customers, the MRR change is $0. 

📊 Rolled Up View Of NRR

After each CSM input their forecast sentiment and MRR changes, managers can work off a NRR summary like this:

In this example, our total install base is $6K and our RR target at 123%.

The total MRR change was $0. Therefore, our RR is 100%.

You can see we have a gap-to-target of $104.41 to close this month. 

With this information, managers can effectively communicate to the business where they are expecting to finish this period. And more importantly, now that they know the gap to target, they can deploy the right resources to get to the target.

Summary

The first step to moving your CSM team from reactive to proactive is getting them to think about future renewals. This forecast model will help you get started.

Your forecast should ideally live in your CRM, not a spreadsheet. So if you have a CRM tool the best way to start is to:

1. Build the Report view based on this model
2. Build a Renewal Deal Pipeline and set properties or stages based on the statuses I suggested here
3. Export the data to this sheet to use the calculator, or build advanced reporting in the CRM to get the summary NRR view

See you next Friday! 

If you are reading this online, subscribe to the newsletter here.