NRR Meaning

A step-by-step guide to measuring Net Revenue Retention (NRR)

What is NRR?

Net revenue retention (NRR) measures the percentage of recurring revenue retained from existing customers, including upgrades and churn, over a specific period. Net revenue retention is a key metric for evaluating a SaaS business or company’s ability both to retain and grow revenue from its existing customer base.

By focusing on revenue from current customers, net revenue retention provides a clear picture of sustainable growth without relying solely on new customers.

Net Revenue Retention (NRR)

Key Highlights

  • Net revenue retention (NRR) measures the percentage of recurring revenue retained from existing customers, including upgrades and churn, over a specific period.
  • For SaaS and subscription businesses, NRR provides a clear picture of customer retention and revenue growth from an existing customer base.
  • The NRR formula is NRR = (Starting MRR + Expansion MRR − Churn MRR) ÷ Starting MRR.

How to Calculate Net Revenue Retention (NRR)

Net revenue retention (NRR), also referred to as net dollar retention (NDR), provides a clear picture of revenue growth from an existing customer base for SaaS and subscription businesses.

Long-term growth depends on more than just signing up new customers. It involves nurturing strong relationships, and identifying opportunities for upgrades, cross-sells, or add-ons is just as important to retain customers. Keeping loyal customers requires meaningful engagement and continuous product and service enhancements.

Calculating net revenue retention allows you to gauge how well you’re meeting customer needs while driving expansion.

Net Revenue Retention Formula (NRR)

To calculate net revenue retention, use the NRR formula:

Net Revenue Retention (NRR) = (Starting MRR + Expansion MRR − Churn MRR) ÷ Starting MRR

The net revenue retention formula is straightforward, but it requires understanding the components that influence it:

  • Monthly recurring revenue (MRR): The recurring revenue generated at the start of the month, also called starting recurring revenue.
  • Expansion revenue: Additional revenue generated from new customers, customer upgrades, add-ons, or cross-sells.
  • Churned MRR: Revenue lost from churned customers who cancel, downgrade, or reduce their usage of your services.

Suppose your starting MRR is $100,000, expansion revenue is $20,000, and the churned revenue is $10,000. Plug these components into the NRR formula as follows:

NRR = ($100,000 + $20,000 − $10,000) ÷ $100,000 = 1.10 or 110%

A result of 110% probably means that your business is expanding revenue from current customers faster than it’s losing revenue to customer churn — a clear indicator of growth.

What is a Good Net Revenue Retention Rate?

A “good” net revenue retention rate varies depending on the industry, business model, and customer base. For many subscription-based and SaaS companies, NRR serves as a key industry benchmark for sustainable revenue growth and customer retention. Generally, an NRR of over 100% indicates that your company is generating more revenue from existing customers than it’s losing through churn, which is a sign of overall business health and customer success.

Net Revenue Retention Rates for SaaS Companies

SaaS companies with strong customer retention and account expansion strategies often achieve NRR rates above 120%. This indicates that account expansion revenue (upgrades and add-ons) significantly outweighs churn. Industry leaders like Slack and Snowflake report high net revenue retention rates exceeding 130%, showcasing their ability to generate substantial growth from existing customers.

Net Revenue Retention Rates for Subscription-Based Companies

Subscription-based businesses aim for NRR rates between 90% and 120%, depending on their pricing model and customer lifecycle. High net retention rates reflect loyal customers who find value in the service, while net retention rates below 90% may signal challenges with customer satisfaction or churned customers.

How to Improve Net Revenue Retention

Improving NRR requires a focus on both customer retention rates and expansion revenue opportunities. Here are some actionable strategies:

  • Enhance Customer Experience: Invest in personalized onboarding, proactive support, and regular check-ins to ensure customers see value from your product or service.
  • Offer Upselling and Cross-Selling Opportunities: Introduce premium features, add-ons, or related services that serve different customer segments and grow their investment.
  • Monitor and Reduce Churn: Identify reasons for customer cancellations and address them through targeted retention strategies, such as special offers or engagement campaigns.
  • Leverage Customer Feedback: Use feedback loops to adapt your offerings and address pain points before customers consider leaving.

Why is Net Revenue Retention Important

NRR is vital for understanding the long-term sustainability of your business. Here’s why:

  • Predicts Growth Without New Customer Acquisition: A high NRR shows that your business can grow revenue from existing customers, reducing reliance on acquiring new customers.
  • Measures Customer Success: Strong NRR indicates that customers find continued value in your offerings, reflecting well on your product and support teams.
  • Helps Prioritize Retention Over Acquisition: Retaining customers is typically more cost-effective than acquiring new ones, and net revenue retention helps you evaluate the effectiveness of your retention strategies.

Net Revenue Retention vs. Gross Revenue Retention, MRR, and ARR

While net revenue retention is an essential metric, it’s helpful to understand how it compares to related revenue metrics:

  • Net Revenue Retention vs. Gross Revenue Retention (GRR): Gross revenue retention is retained revenue from existing customers. It excludes any revenue growth from upgrades or add-ons, making gross revenue retention a more conservative measure of customer retention. To calculate gross revenue retention, use the following formula:
    Gross Revenue Retention = [(Starting MRR – Downgrade Revenue – Churned Revenue) / Starting MRR] × 100
  • Net Revenue Retention vs. Annual Recurring Revenue (ARR): Annual Recurring Revenue measures total recurring revenue over a year, offering a high-level perspective, while net revenue retention focuses on month-to-month retention and growth.
  • Net Revenue Retention vs. Monthly Recurring Revenue (MRR): Monthly recurring revenue tracks overall monthly revenue, while NRR highlights the dynamics of growth and customer churn within that revenue.

Net Revenue Retention: A Window Into Growth Potential

Net Revenue Retention (NRR) is more than just a number — it’s a window into your company’s growth potential. A strong NRR reflects satisfied existing customers, sustainable revenue growth, and effective retention strategies. By focusing on retention, expansion, and addressing customer churn first, your business can achieve predictable, scalable growth.

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