The NRR Allocation Test

What everyone does instead

Commercial capacity is split between new logo acquisition, retention and expansion at budget time, then held fixed for four quarters. The split is inherited from how the organisation was structured, usually before recurring revenue was the dominant model. Marginal return per hour on each activity is not computed, so the split is never revisited on evidence.

What to compute

• Marginal economic profit per hour for each of the three activities, computed from your own win rates, deal sizes, expansion rates and loaded costs.
• Current allocation of proactive hours across the three.
• The reallocation that equalises marginal return, with the diminishing-returns curve stated explicitly.

The arithmetic

$62M ARR, 118% net retention, 28 reps and 6 CSMs

New-logo pursuit                $148 per hour    1.0x    90.6% of proactive hours
Retention intervention          $535 per hour    3.6x     5.1%
Expansion pursuit             $1,356 per hour    9.2x     4.3%

Gross gap, new logo to expansion
$1,356 - $148                 $1,208 per hour

Realised value after diminishing returns
1,400 hours moved                         $1,460,000      $1,043 per hour
2,100 hours moved                         $2,044,000        $973 per hour
2,800 hours moved                         $2,530,000        $904 per hour

$2,044,000 / $62,000,000                        3.3%      of ARR

What changes if this is true

Net revenue retention stops being a metric someone is judged on and becomes a decision someone can make. The split between new logo, retention and expansion was set at budget and has not been revisited while the marginal returns moved underneath it. Once the marginals are visible, the split is a quarterly decision rather than an annual inheritance.

What you need and how long