Hello Sophie… welcome to GameChanger and that is a fantastic discussion to start off on our Community.

Lemme try route some experience here.

Hi @SophieHurst 

Welcome to the Gamechanger Community at Gainsight!

On your question, I’m wondering how your finance/accounting department would track? 

Im probably misunderstanding, but it seems like you wouldnt have an accurate calculation if you logged the full amount.  Ill use a Gainsight example:

• Customer has 10 user licenses and needs 5 more at month 6.
• Upsell opp would be prorated and billed for 50% of the annual cost of 5 licenses
• At the renewal date, we would renew for 15 licenses for a year

Does that help? 

Hi @tyler_mcnally 

Thanks so much for your reply!

Finance/Accounting isn’t responsible for monitoring NRR, it’s up to me as the CS leader to calculate and report. 

The scenario you mentioned definitely looks like my ‘for pro-rated’ argument in my original post. I suppose what’s stopping me is that logging the pro-rated upsell is not representative of the actual size of the upsell. E.g. Upsell A could be worth $12000 for a full year but only be for 2 months so showing as $1000, Upsell B could be worth $6000 for a full year but be for 6 months so show as $3000, appearing like a bigger upsell. 

I hope that makes sense - maybe I’m overthinking!

Hi @SophieHurst 

Love that you are stepping in to showcase the impact CS is having on NRR!!!!

Digging in a bit more… 

Would the expansion be cotermed with the existing contract?

Current Contract:

• 10 licenses, 100 per license per month, 12 month duration = 12,000 annual contract value (ACV)
• 6 months left

Expansion contract:

• 5 licenses, 100 per license per month, 
• If co-termed, it would be a 6 month contract = $3,000 ACV
• If not co-termed, it would be a 12 month contract = $6,000 ACV

Long-term approach usually is to coterm - simplifies/speeds up contracting with customers and avoids a lot of complexity with financial reporting - but it’s not a big issue if that isnt the approach you take today.

From your description, it sounds like you do NOT co-term.  In which case, I think your non-prorated approach makes sense. Playing it back:

Net Retention Rate for your Fiscal Year

• Denominator: Total Dollars customers spend with you on Day 1 of fiscal year
• Numerator: Denominator (e.g. total current spend) - Churns - Downsells + Expansions

Customer A: 

• Current Spend: $12,000, 2 months left on contract
• Expansion: $12,000 for 12 months
• Customer NRR = 200% (24,000 / 12,000)

Customer B:

• Current Spend: $6,000, 6 months left on contract
• Expansion: $6,000 for 12 months
• Customer NRR = 200% (12,000 / 6,000)

It would go the opposite way with downsells - if the customer A cuts everything they bought with expansion 12 months later, there is 2 months left on the original 12,000 contract and the expansion contract goes from 12,000 to 0

So customer A (churning the expansion) would then have NRR (and GRR) of 50%.

let me know if this helps!
 

Hi @tyler_mcnally 

Thank you for this detailed reply. We do ‘co-term’ already. 

So the challenge is for e.g.:

Customer current ACV at last renewal: $10,000

Customer buys additional allowances at month 10 of contract term: $1,000 (would be $6,000 for full year)

We log upsell as $1,000 in Renewal Center and we change the ARR in the C360 to $16,000

Customer renews at month 12 on $16,000 (ACV at last renewal + full year upsell)

Renewal Center takes ARR from C360 as ‘target’ and so appears to be no increase in ARR YoY. 

Thanks!

Hi @SophieHurst - 

Based on our discussion, I was thinking the following should happen:

1. log an $6,000 upsell in Renewal Center - e.g. there is a closed won upsell opportunity 
2. C360 ARR increases to $16,000
3. Renewal opp in renewal center for 2 months later for the original 10,000 
4. You would have two separate opportunities in renewal center reflecting the original contract and the upsell… until you co-term them

This is where co-terming becomes really valuable to reduce the complexity of these calculations. But in the meantime, my recommendation is to think about what’s most useful by audience. Some potential ideas:

• 360 should probably reflect the total ARR across renewal and upsell contracts
• RC should count the full value of the upsell as part of NRR calculation
• A report that shows the total value of upsells 

It sounds like it would be helpful for a deeper dive on how RC/C360 are set up to show the values you want.  Either with your CSM and/or via Office hours.

You can find office hours schedule here: https://community.gainsight.com/meetings-office-hours-8

It looks like next one is planned for 10/10