What is Repeat Buyer Ratio, why it is better than NRR, and how to improve it
Since Q2 2022, the tech industry has been on its back heels. There seems to be a major layoff announcement every other week. Salesforce is not providing revenue guidance for next year citing market uncertainty, and investment multiples have more than halved 20x multiples of the last few years are back down to the historical norm of 5-7x. Startup boards and CEOs have adjusted operating strategy from growth-at-all-cost to efficient growth. The golden profile of a SaaS company is now defined by the 40% rule plus 120% Net Revenue Retention (NRR). Retention rate is so hot right now you even have investors writing about whether Gross Revenue Retention (GRR) or Net Revenue Retention is a better metric. Yet, there is a better metric than both, and surprisingly few investors talk about it besides Jason Lemkin: repeat buyer ratio.
Repeat Buyer Ratio: what is it?
Jason Lemkin is a big fan of measuring customer satisfaction, such as NPS, early and often. From his experience NPS is the biggest leading indicator of whether a startup will be able to scale beyond $10m ARR efficiently. Jason points out that a high NPS not only leads to higher retention metrics, GRR and NRR, but it also leads to what he calls “second order upsell”, which is when a happy customer moves to a new company and buys your product again. A more intuitive name would be Repeat Buyer Ratio (RBR). A RBR is calculated as follows:
RBR = ARR from repeat buyers / total ARR
RBR is a percentage from 0% to 100%. For example, my company Openprise has an RBR of 20%, which means 20% of our total revenue comes from repeat buyers who were happy customers at their previous career stops.
Since RBR is not an in-vogue metric, there is very little benchmark data for it. I would propose the following scale for how to evaluate Repeat Purchase Ratio.
- < 10% is bad.
- 11% – 15% is good.
- 16% – 25% is excellent.
- > 25% is bad.
Less than 10% RBR is an indicator that your customers don’t like your product well enough to buy again. More than 25% RBR is also bad because it means you’re not winning enough new customers. It may be a telltale sign that you’ve reached saturation with a very niche set of buyers. The 20% range intuitively sounds like an optimal target as it shows strong customer loyalty balanced with the ability to win new logos.
Why is RBR better than GRR/NRR?
RBR is not a replacement for NRR. You should definitely track both and there is no good reason why you shouldn’t. Here are what the different combinations of these two metrics say about your SaaS business.
Your customers continue to buy more or not churn, but they don’t buy from you again. You have high NRR because your product is hard to get rid of due to technical, cost, or bureaucratic reasons.
“Love It” Product
You have a great product that not only customers spend more money with you over time, but they also buy you again when they move on.
Your customers just don’t like your product. They churn and they won’t buy from you again.
Your product has high customer satisfaction, and they buy it repeatedly, but you need to add features and products to grow existing customers.
|Low RBR||High RBR (> 15%)|
Repeat Purchase Ratio is important to measure even if you already measure NPS. NPS is opinion based and has some challenges built in. NPS has a nonlinear scale that is often not intuitive, causing reviewers to give a lower rating that does not accurately reflect their advocacy. There are also just some people that believe that God only gets a seven. 🙂 In contrast, RBR is hard data. The best feedback is when customers vote with their dollars.
If you have to choose one metric to focus on, RBR is likely a better metric than NRR; these two metrics are more often than not correlated, unless your product has no upsell potential at all. If a customer is willing to buy from you again, they are certainly willing to buy more from you. A high RBR in most cases also implies a high NRR, but not in reverse.
Why is RBR important? If efficient growth is the modus operandi, a repeat customer deal is easier to win. Using Openprise as an example, this is how our repeat customer segment compares to the average:
- Opportunity win rate is 4x higher.
- Deal cycle is 40% shorter.
- Average contract value (ACV) is 15% bigger.
If you want to build efficient growth, there is no better way to boost your efficiency than boosting your RBR.
How to improve RBR
Hopefully I have convinced you that RBR is important. Here are three things you should do to improve your RBR.
Align with your buyer’s personal success
Some wise person once said the only reason a person would buy a B2B product is because it can personally benefit the buyer’s career, whether it’s helping him meet his performance goals, get promoted, or build his resume. You may think this is too cynical of a view, but there is a whole lot of truth to it. Sure, the solution should solve problems and benefit the customer at the company level, but it should also have a strong value proposition to the buyer personally as well. These are not mutually exclusive drivers.
B2B sales is still very much a people business and relationship matters. If a buyer can attribute personal gain to your solution, you have a much better chance of turning that person into a repeat buyer.
Make sure your customer success team doesn’t just look to add value to the company, but also look to add value to your champions and users personally.
Help them build the ROI
Most buyers of SaaS solutions are not great at building a solid business case for it. Buyers often focus too much on cost reduction and not enough on topline benefits. They too often focus on personal benefit and not enough on the impact on the company’s metrics. Doesn’t matter how much your users and champions love you, if they are not able to effectively demonstrate the value of your solution to their bosses. Their ability to buy from you again at a new company will be tough, given they don’t yet have the relationship and credibility that can often carry a business case when it comes from a more tenured employee.
As a vendor partner, your job is to help your repeat buyer build a strong business case with convincing and plausible ROI that a CFO can understand and believe. Every operational improvement should be linked to a dollar amount via a simple model that the CFO can understand intuitively. In this tough economic environment CFOs are looking for every excuse to not spend money, so your repeat buyer will need your help to clear the gauntlet. Also make sure your champions understand the drivers for the ROI so they can recognize the pains and opportunities in the next role.
Track your champion movers
Once you get your champions and users to love your solutions and services, you need to actively track them if they move on to a different company. This is easier said than done and requires the right technology to scale. There are typically two ways you find out if your champion will be moving or has already moved: your customer success team or LinkedIn update. Your customer success team can often find out about a move a-priori or after the fact. This requires your customer success team to be in constant contact with the customer and can usually only cover the immediate team that works with your product regularly. In this day and age the only reliable and scalable method of tracking is to detect the move when someone has updated their LinkedIn profile.
To track champion movers requires a RevOps solution that can automate these three tasks:
- Scrape LinkedIn profile updates for the champion you want to track. This should include prospects that love you but for some reason were not able to buy.
- Detect company changes and title promotions by comparing the person’s LinkedIn data to the data from your CRM.
- Once a move is detected, find the person’s new contact information and activate GTM plays like a special nurture campaign or a personal outreach from the sales rep that owns the new account.
When it comes to tracking champion movers, speed is of the essence. Relying on third-party data providers to flag a move is too late, as it usually takes three to nine months for a mover’s information to be updated at these enrichment data services.
Repeat buyers drive efficient growth
It is a challenging time for SaaS companies. The movement to revert to business fundamentals and focus on efficient growth is a healthy reset for an industry that frankly got a bit too frothy during the last five years. Focusing on repeat buyers and starting to track Repeat Purchase/Buyer Ratio as a key business metric is a good way to improve your growth efficiency.
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