Natural Rate of Growth
Date created: Oct 12, 2022 • Last updated: Oct 12, 2022
What is Natural Rate of Growth?
Natural Rate of Growth measures the speed at which your company grows, purely based on organic sources of growth. This includes organic signups and incremental recurring revenue started in product without sales involvement.
Natural Rate of Growth Formula
How to calculate Natural Rate of Growth
Say your SaaS company grows at an annual rate of 120% in ARR. You calculate that 90% of your incremental recurring revenue starts in the product and that 100% of your signups are organic. Your Natural Rate of Growth would be 120 * .9 * 1 or 108%.
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What is a good Natural Rate of Growth benchmark?
For a company with less than $10M ARR, the best NRG is 150% or more, whereas a company making between $10M and $50M should aim for an NRG of 100% or more. A company making more than $50M ARR can aim for an NRG of around 50%.
Natural Rate of Growth benchmarks
How to visualize Natural Rate of Growth?
Ideally, your Natural Rate of Growth increases over time. To keep track of the change in trend, track your NRG in a line chart displayed with other growth metrics on your dashboard. Check in every month or quarter to observe how your efforts have impacted your metrics, and adjust your strategy accordingly.
Natural Rate of Growth visualization example
Natural Rate of Growth
ChartMeasuring Natural Rate of Growth
More about Natural Rate of Growth
Natural Rate of Growth (NRG) is a growth metric coined by Open View Partners in 2020, that measures the rate of a company's growth that occurs organically based on the product's standalone ability to grow. It is calculated by multiplying annual ARR Growth Rate with the percentage of organic signups and the percentage of ARR that can be attributed purely to the product.
NRG is suggested as an alternative to traditional growth metrics because it acknowledges how growth occurs in companies adopting a product-led growth strategy. For early stage startups with an ARR less than $10M, typical growth metrics such as ARR Growth Rate can be misleadingly low. This is why NRG focuses on measuring revenue and growth through the lens of how customers are responding to the product.
To track this metric, multiply your annual ARR Growth Rate with the percentage of all signups that happened through an organic source, which means excluding any leads generated through paid marketing and advertising, events, or sales outreach. Multiply this number further by the percentage of incremental ARR obtained outside of sales or demos, and only through a user finding value in your product. The advantage of having a high NRG includes a loyal, high-intent user base, self-sufficiency, and exceptional product-market fit.