Why We Stopped Chasing 'Net Revenue Retention'. The Metric That Made Us Ignore New Customers.

Our Net Revenue Retention was 140%. Investors loved it. "Best-in-class! You're expanding within accounts! Land and expand is working!"

What they didn't see: New logo acquisition had collapsed.

We were so focused on upselling existing customers that we'd gutted our acquisition engine. CAC had ballooned because we'd defunded demand gen. Marketing was an afterthought. SDRs were laid off. "We don't need new logos — we're expanding existing ones!"

Then our biggest customer — 12% of ARR — churned. Reorg. New leadership. They went with a competitor.

We had no pipeline to replace them.

NRR went from 140% to 85% in one quarter. We almost died.

Here's why NRR is a dangerous vanity metric — and what we measure instead.

Section 1: Why VCs Worship NRR (And Why That's Dangerous)

Net Revenue Retention is a beautiful metric. It asks: "If you acquired no new customers, would you still grow?"

NRR above 100% means existing customers are expanding faster than others are churning. You could literally stop selling and still grow revenue. Sounds magical.

Why Investors Love It:

• Efficiency signal: High NRR means you don't need to spend as much on acquisition. Every dollar of existing revenue compounds.
• Product-market fit signal: Customers who expand are happy customers. They're voting with their wallets.
• Valuation driver: Public SaaS companies with 120%+ NRR trade at premium multiples. VCs want portfolio companies to look like these comps.

The Problem:

NRR is a lagging indicator. It tells you about customer behavior from the past 12 months. It says nothing about the next 12 months.

Worse, optimizing for NRR can distort your business in ways that make the future worse.

The Distortion:

When NRR becomes the primary metric, organizations shift resources from acquisition to expansion:

• Marketing budget moves from demand gen to customer marketing
• Sales headcount moves from SDRs to Account Managers
• Product roadmap prioritizes expansion features over acquisition hooks
• Leadership attention focuses on existing accounts, not new markets

This creates a doom loop: The less you invest in acquisition, the more dependent you become on existing customers. The more dependent you become, the more fragile your revenue.

Section 2: How NRR Obsession Broke Our Business

Let me be specific about what happened to us.

The Shift:

In 2024, our board set NRR as the key efficiency metric. "Get to 130%+ and you'll look like the best public comps."

We reorganized around this goal:

• Customer Success team doubled. Account Managers got upsell quotas.
• Marketing shifted 60% of budget from demand gen to customer webinars and expansion campaigns.
• SDR team was cut in half. "We don't need cold outbound — our customers are growing us."
• Product prioritized features for power users (expansion) over features for new users (acquisition).

It worked. NRR hit 140% by Q3 2025.

The Hidden Rot:

What we didn't track carefully enough: new logo acquisition.

New logos per quarter dropped from 45 to 22 — a 50% decline. We noticed, but we rationalized: "Each new customer is higher ACV because we're focused. Quality over quantity."

Revenue was still growing because expansion outpaced acquisition decline. The dashboard looked green.

The Collapse:

Then our largest customer churned.

They were 12% of ARR. A single account. When their new VP decided to consolidate vendors, we were out.

12% of ARR gone overnight. And our pipeline to replace it? Anemic. We'd defunded the acquisition engine that would have given us options.

NRR for the quarter: 85%. Below 100% for the first time. Growth turned negative.

We had to emergency-hire SDRs, spin up demand gen campaigns, and hope leads materialized in 6-9 months. It was a near-death experience.

Section 3: The Metrics That Actually Matter

After the crisis, we rebuilt our metrics framework. NRR is still tracked — but it's not the north star.

Logo Growth Rate:

How many new customers are you adding, quarter over quarter?

This is a leading indicator. It tells you about the health of your acquisition engine right now, not 12 months ago.

We now require logo growth to be positive every quarter. If it turns negative, it's a red flag that triggers immediate investigation — even if NRR looks fine.

Revenue Concentration:

What percentage of ARR is concentrated in your top 5 customers? Top 10?

If any single customer is more than 5% of ARR, you're in the danger zone. One churned email away from crisis.

We now have a hard rule: no customer can exceed 5% of ARR. If a deal would push a customer past that threshold, we actively diversify — even if it means slowing expansion in that account.

CAC Trend:

Is it getting cheaper or more expensive to acquire new customers?

Rising CAC is a warning sign: your acquisition engine is becoming less efficient. Maybe the market is saturating. Maybe your positioning is stale. Maybe competition is heating up.

We track CAC on a rolling 3-month basis. Any increase triggers a marketing strategy review.

Pipeline Coverage:

Do you have enough pipeline to hit your new logo targets?

We use a 3x coverage ratio: $3 of pipeline for every $1 of new logo target. If coverage drops below 3x, we invest more in demand gen immediately.

The New Framework:

Our metrics hierarchy is now:

1. Logo growth rate (leading indicator, acquisition health)
2. Revenue concentration (risk indicator, fragility)
3. CAC trend (efficiency indicator, scalability)
4. NRR (lagging indicator, expansion health)

NRR is still important. But it's fourth, not first.

Section 4: How We Rebalanced

After the crisis, we made structural changes to prevent it from happening again.

Reinstated Demand Gen:

We rebuilt the marketing budget with a 50/50 split: 50% demand gen (new logos), 50% customer marketing (expansion).

This was painful. It meant admitting that our "efficient" expansion-focused approach was actually fragile.

Rehired SDRs:

We brought SDR headcount back to previous levels. Outbound is slower than inbound, but it's controllable. You can always generate more outbound activity. Inbound depends on market conditions.

Capped Expansion Quotas:

Account Managers still have upsell quotas. But we capped them at 20% of their total target.

This prevents AMs from over-focusing on expansion at the expense of customer health. A happy customer who doesn't expand is better than an over-expanded customer who churns.

The 5% Rule:

No customer can exceed 5% of ARR.

When a large prospect wants to sign a mega-deal, we actively discuss: "What's our concentration risk if they churn?" Sometimes we structure deals to limit exposure — even if it means leaving money on the table short-term.

Results:

• NRR dropped from 140% to 115%. Still healthy. But expansion is now balanced with acquisition.
• Logo growth returned to 40+ new customers per quarter.
• Revenue concentration improved: No customer is above 4% of ARR.
• The business is healthier. We sleep better.

Conclusion

Net Revenue Retention is a seductive metric. It makes you feel efficient. It impresses investors. It suggests you've cracked the code.

But it's a lagging indicator that can mask existential problems.

If you're growing NRR by starving acquisition, you're not building a healthy business. You're building a house of cards, waiting for one whale to churn.

Grow the pie before you slice it bigger. Lead with acquisition. Balance with expansion. Diversify your revenue base.

High NRR is great. High NRR with collapsing new logos is a trap.