Net Revenue Retention (NRR)

What is Net Revenue Retention (NRR)?

Net Revenue Retention (NRR) measures the percentage of recurring revenue retained from existing customers over a period, accounting for expansion revenue (upsells, cross-sells) and contraction revenue (downgrades, churn). NRR above 100% means you're growing revenue from existing customers even without new sales.

The formula: ((Starting Revenue + Expansion - Contraction - Churn) / Starting Revenue) x 100. NRR is calculated over annual periods for meaningful comparison, though monthly NRR can be tracked for operational management.

Why It Matters

NRR has become the most important SaaS metric because it captures the complete customer revenue story: retention, expansion, and health. Companies with 120%+ NRR grow 3x faster than those with 90% NRR because they're not replacing lost revenue before growing.

NRR also determines valuation multiples. Public SaaS companies with 120%+ NRR trade at 2-3x higher revenue multiples than those with 100% NRR. Investors reward businesses that grow from existing customers because that growth is more efficient and predictable.

Benchmarks

• World-class: 125%+ NRR (top decile of public SaaS)
• Excellent: 110-125% NRR
• Healthy: 100-110% NRR
• Concerning: 90-100% NRR (leaking revenue)
• Critical: Below 90% NRR (significant retention problems)

Best Practices

1. Calculate NRR by cohort - Track NRR for customers acquired in each period. Newer cohorts may have lower NRR initially; maturing cohorts reveal whether product-market fit strengthens or weakens.

2. Segment NRR by customer type - Enterprise, mid-market, and SMB customers often have dramatically different NRR. Understand which segments deliver the best retention and expansion.

3. Focus on expansion revenue - NRR above 100% requires expansion. Proactively identify expansion opportunities and make upselling part of customer success motions, not just sales.

4. Address churn quickly - Small churn problems compound. Investigate every churn event to understand root causes. Fixing product or onboarding issues pays compounding dividends.

5. Use NRR to guide investment - Segments with high NRR justify higher acquisition spend and expansion resources. Low-NRR segments may not be worth pursuing at all.

Common Mistakes

• Focusing on gross retention while ignoring expansion revenue
• Treating all NRR equally without segmenting by customer type
• Not tracking NRR by cohort, missing important trends
• Ignoring that NRR below 100% means burning cash to replace lost revenue
• Celebrating 100% NRR when competitors are at 120%

Key Takeaways

• NRR is the single most important SaaS metric for customer health
• 100%+ NRR means growing revenue from existing customers
• 120%+ NRR is world-class and dramatically increases growth rate
• Track NRR by cohort and segment for actionable insights
• Small NRR improvements create massive compounding effects over time