Why it's important to sign net new customers in a SaaS software business (new ARR) in addition to focusing on NRR and GRR metrics?

Since entering the tech world in 1999, I’ve observed a lot of change.  By the time I joined my first SaaS company in 2005, signing up new customers as a means to deliver topline ARR growth was the norm especially for a small company…so much so that in my first year as a seller there, there was “new logo” contest for the year, pushing each of us to get on the phones and to get out and meet people.  

The GFC in the late 2000’s, and more recently the pandemic and subsequent tighter times have shifted the focus of many SaaS businesses to existing customers.  But bringing on new customers is still important for several reasons, while continuing to increase focus on metrics like Net Revenue Retention (NRR) and Gross Revenue Retention (GRR).

‍

While NRR and GRR primarily measure the revenue generated and retained from existing customers, acquiring new customers still can drive core ARR acceleration, seeds the future for NRR impact and brings its own set of benefits that contribute to the overall growth and sustainability of your business:

1. Current and Future Revenue Growth: Acquiring new customers directly contributes to revenue growth. While ASPs for new customers may be smaller than growth opportunities in ENT sales motions, signing new customers allows for the expansion of the customer base, continuously providing fresh additional upsell and cross sell opportunities - thus seeding future impact on NRR, both in terms of % and absolute revenue.
2. Market Expansion: Acquiring net new customers helps in expanding your business's market reach. By targeting new customer segments, industries, or geographical regions, a company can explore new verticals to test product market fit, potentially establish a beachhead customer in a new vertical and diversify its customer base.  For example, your core ICP vertical might be Finance, or working with large Telcos.  But you may find your solution to be valuable to Travel/Hospitality, Utilities, High Tech or any of a dozen others.  You won’t know if you don’t test these markets.  Diversification can also protect your business from macro economic factors that might affect your core vertical focus (see past and current finance/banking challenges)
3. Increased Brand Awareness: Attracting new customers helps to raise brand awareness and build a reputation in the market. New customers often share their experiences and provide referrals to the company, which can lead to further growth through word-of-mouth marketing. Establishing a strong brand presence contributes to long-term success by attracting more potential customers and opportunities.
4. Feedback and Product Validation: Acquiring new customers provides an opportunity to gather valuable feedback on the product or service, both existing and new. New customers may have different perspectives, needs, and expectations compared to existing customers. Engaging with them allows the company to validate its product-market fit, identify areas for improvement, and make necessary adjustments to better meet market demands.
5. Gaining on Competition:  I’ve worked for just one company that had no real competitors, and surprisingly, I wish we’d had one.  Launching sales, outbound and marketing initiatives geared towards taking away your competitions’ customers can provide a benefit beyond ARR growth.  So take it them and make their customer your new customer. 
6. Investor and Stakeholder Confidence: Acquiring new customers demonstrates growth potential and market demand, which can instill confidence in investors and stakeholders. It showcases the ability of the SaaS company to attract customers, generate sales, and expand its market share, making it an attractive investment opportunity.
7. Salesperson Development:  Many businesses use new customer acquisition as a means for developing their sales people.  Net new customer sales provides a natural next step for demand generation team members that aspire to become sales people.  This reduces time to value (lower ramp time) and reduces recruiting and onboarding costs to the company. 

‍