Net revenue retention (NRR)

Why it matters

Net revenue retention shows whether the customers you already have are worth more or less to you over time. Above 100%, your existing base grows by itself, and every new customer is added on top of that growth. Below 100%, you refill a shrinking base before you can grow.

It combines three forces in one number: the revenue that leaves in cancellations, the revenue that shrinks in downgrades and the revenue that grows in expansion. Pairing it with gross revenue retention, which leaves expansion out, shows how much of the result is protection and how much is growth.

The formula

Start with the recurring revenue from the customers who were paying at the beginning of the period. Add expansion from those customers, subtract downgrades and cancellations, and divide the result by the starting revenue. Revenue from customers who joined during the period is excluded. Gross revenue retention runs the same calculation but ignores any upsell.

NRR = (MRR at start + expansion - downgrades - cancelled) / MRR at start
GRR = (MRR at start - downgrades - cancelled) / MRR at start

A worked example

A business starts the month with $50,000 of MRR from its existing customers. These numbers are made up for illustration.

Adding $2,500 and subtracting $2,000 leaves $50,500, which is 101.0% of the starting revenue. Because the figure is above 100%, net revenue churn is negative at -1.0%. Gross retention, which ignores expansion, is 96.0%. Held for twelve months, that retention would turn $100 of cohort revenue into $112.7, while the gross figure would leave $61.3.

How to improve it

Raise net revenue retention by losing less and by giving customers more to buy.

• Lower the cancellation and downgrade losses first, since gross retention sets the floor for the whole figure.
• Build pricing that grows with usage or seats so that a customer's success shows up as revenue.
• Identify the cohorts and plans with the weakest retention and compare them with the strongest to see what differs.
• Give account owners a view of expansion opportunities among customers who are close to a plan limit.

Common mistakes

• Including revenue from customers who joined during the period. The measure follows a fixed starting group.
• Quoting NRR without gross retention. A high NRR built on a few large expanding accounts can hide a leaky base.
• Mixing periods, for example monthly expansion with annual churn. Use one period for every term in the sum.
• Counting one time fees or reactivated customers as expansion, which overstates the result.
• Reading above 100% as proof that nothing needs fixing. It says the base grows overall, not that individual customers are staying.

Calculate it and read next

Work it out with your own figures in the churn rate calculator. Then read about Revenue churn rate, Expansion MRR and Customer churn rate.

• Revenue churn rate: the loss side of the same movements.
• Expansion MRR: the growth side of the same movements.
• Customer churn rate: the same base counted in customers.

Frequently asked questions