What is Net Revenue Retention? Formula + Example
Table of Contents
Net revenue retention (NRR) is the percentage of recurring revenue retained from existing customers over a specific time period. It’s a SaaS key performance metric that reflects customer satisfaction, often used in customer profitability analysis.
The formula is:
Net revenue retention = (Starting MRR + Expansion MRR − Churned MRR − Contraction MRR) ÷ Starting MRR × 100
In this guide, we’ll break down what NRR is, how to calculate it, and how to increase this metric in your business.
Quick Recap
- Net revenue retention calculates the net percentage of revenue retained from existing customers, accounting for upgrades, downgrades, and churn.
- Net revenue retention rises when current customers generate more revenue.
- Gross revenue retention only looks at revenue lost through churn or contraction — Net revenue retention includes everything: churn, contraction, plus expansion and reactivation.
What is Net Revenue Retention?
Net revenue retention is the percentage of recurring revenue retained from existing customers in a given period, reflecting both account expansion and contraction.
Unlike Gross revenue retention (GRR), which only tracks how much revenue you kept without counting expansions, NRR includes all the changes in existing customer revenue, including upsells/cross sells, churn rates, and downgrades.
What is the Net Revenue Retention Formula?
The formula is:
Net revenue retention = (Starting MRR + Expansion MRR − Churned MRR − Contraction MRR) ÷ Starting MRR × 100
Let’s break this down:
- Starting MRR: Monthly recurring revenue from existing customers at the beginning of the period.
- Expansion MRR: Revenue gained from upsells, cross-sells, or upgrades.
- Churned MRR: Revenue lost due to customer cancellations.
- Contraction MRR: Revenue lost from downgrades.
How to Calculate Net Revenue Retention?
Here’s step-by-step guide to calculate NRR:
Step 1: Choose your time frame. Most SaaS businesses calculate NRR monthly (using MRR) or annually (using ARR).
Step 2: Find your starting MRR. Do not include new customers acquired during the period.
Step 3: Add expansion MRR. This includes any upsells, cross-sells, add-ons, or seat expansions from those same customers during the period.
Step 4: Subtract churned MRR. Start by the revenue lost from customers who fully canceled during the period.
Step 5: Subtract contraction MRR. Calculate the revenue lost due to downgrades or reduced usage from existing customers.
Step 6: Plug into the above formula: Net revenue retention = (Starting MRR + Expansion MRR − Churned MRR − Contraction MRR) ÷ Starting MRR × 100
Net Revenue Retention Example
Imagine you’re running a SaaS platform and want to calculate your NRR for July.
Here’s what your numbers look like:
- Starting MRR (from existing customers on July 1st): $100,000
- Expansion MRR (upsells and cross-sells): $15,000
- Churned MRR (lost from customers who canceled): $6,000
- Contraction MRR (lost from downgrades): $4,000
Net revenue retention = (Starting MRR + Expansion MRR − Churned MRR − Contraction MRR) ÷ Starting MRR × 100
Net revenue retention = (100,000 + 15,000 − 6,000 − 4,000) ÷ 100,000 × 100
NRR = (105,000 ÷ 100,000) × 100 = 105%
So, your net revenue retention is 105%. That means your existing customers brought in 5% more revenue this month compared to last month.
Further Reading
What is a Good Net Revenue Retention?
The benchmark for a good Net Revenue Retention varies by business size. For enterprise companies, an NRR above 100% signals strong growth, while small and medium businesses typically consider an NRR between 90% and 100% to be excellent.
Further Reading
How to Increase Net Revenue Retention?
A rule of thumb: NRR goes up when your current customers spend more. There’s a few proven ways to do that:
1. Maximize Expansion Revenue
NRR is all about revenue generated from your current customers. So the more money you earn from your existing customers, the higher your NRR.
Here’s 3 most widely used methods:
- Encourage customers to upsell to higher-tier plans.
- Cross-sell add-ons or modules that work alongside the main product.
- Charge based on number of users, transactions, API calls
Further Reading
2. Minimize Churn
Churn eats directly into NRR. When customers leave, that revenue is gone.
To reduce churn, we suggest:
- Show quickly how customers get value from your product.
- Track engagement metrics to spot high-churn customers early.
- Stay connected and supportive after the sale
3. Prevent Contraction (Downgrades)
Contraction happens when a customer stays but pays less. Maybe they started on a premium plan but moved to a cheaper tier.
In this case, you keep them aware of the ROI they’re getting — and here’s how you do it:
- Highlight milestones (e.g., “You’ve hit 1,000 orders!”)
- Share success stories or case studies from other customers like them
- Remind them of features they’re not using that could benefit them
- Offer proactive support (e.g., “We noticed you haven’t used X yet — want help setting it up?”)
For any SaaS business aiming for sustainable growth, Net revenue retention is a north star metric. It doesn’t just show how well you retain—it shows how well you expand. If you're serious about growth, tracking and improving NRR should be part of your core strategy.
Net Revenue Retention FAQs
How do you calculate net revenue retention?
Net revenue retention (NRR) is calculated by taking your starting recurring revenue from existing customers, subtracting churn and contraction, then adding expansion revenue. Divide that number by the starting revenue and multiply by 100 to get the percentage.
What is the difference between GRR and NRR?
GRR (Gross revenue retention) only accounts for revenue lost through churn or downgrades, while NRR (Net revenue retention) includes that plus any expansion or upsell revenue, giving a fuller picture of growth from your current customers.
What is considered good net revenue retention?
A good NRR depends on your business model, but generally, anything above 100% means you’re growing revenue from existing customers. For SaaS companies, 110–130% NRR is often considered strong.
What is ARR vs NRR?
ARR (Annual recurring revenue) is the total recurring revenue your business expects from subscriptions in a year, while NRR measures how that recurring revenue from existing customers changes over time due to churn, contraction, or expansion.
What is a good NRR?
A good NRR is typically over 100%. That means upsells and expansion revenue outweigh churn and downgrades. Industry leaders often maintain NRRs of 120% or more.
Can net revenue retention be over 100%?
Yes, and it’s a great sign! An NRR over 100% means your existing customers are spending more over time, even if you lose a few others.
Which is better, NRR or GRR?
Both matter, but NRR gives a more complete view of customer revenue dynamics because it includes both revenue lost and revenue gained from existing customers. GRR is more conservative and useful for understanding retention without growth.
What does NRR over 100% mean?
It means your expansion revenue from existing customers is higher than the losses from churn or downgrades—your business is growing without needing new customers.
How is NRR determined?
NRR is determined by looking at revenue changes in your existing customer base over a set period. You subtract churn and downgrades, add upsells and expansions, and divide the result by the starting revenue from those same customers.
Is an 80% retention rate good?
An 80% net revenue retention rate may be acceptable in some industries, but in SaaS, it often signals high churn or low upsell potential. Most successful SaaS companies aim for 100%+ NRR.
Leah Tran is a Content Specialist at TrueProfit, where she crafts SEO-driven and data-backed content to help eCommerce merchants understand their true profitability. With a strong background in content writing, research, and editorial content, she focuses on making complex financial and business concepts clear, engaging, and actionable for Shopify merchants.
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