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What is Net Retention Rate?
Net Retention Rate (NRR) is a key performance metric used to measure how much recurring revenue a company retains from its existing customers over a given period, including the effects of upgrades, downgrades, and churn. It shows the overall health, growth potential, and customer satisfaction within subscription and SaaS-based business models.
Definition
Net Retention Rate (NRR) is the percentage of recurring revenue retained from existing customers after accounting for expansion, contraction, and churn.
Key takeaways
- Core SaaS metric: Indicates long-term customer value.
- Includes expansion revenue: Captures upsells, cross-sells, and add-ons.
- More accurate than gross retention: Reflects both gains and losses.
- Over 100% is excellent: Means existing customers generate more revenue over time.
- Predicts scalability: High NRR supports strong and efficient growth.
Formula
NRR = (Starting MRR + Expansion – Contraction – Churn) ÷ Starting MRR × 100
Where:
- Starting MRR: Monthly recurring revenue from existing customers at the beginning of the period
- Expansion: Additional revenue from existing customers
- Contraction: Reduced revenue from downgrades
- Churn: Lost revenue from customers who cancel
Example:
Starting MRR: $100,000
Expansion: +$20,000
Contraction: –$5,000
Churn: –$10,000
NRR = (100,000 + 20,000 – 5,000 – 10,000) ÷ 100,000 × 100 = 105%
Why NRR matters
For businesses:
- Demonstrates product value and customer satisfaction.
- Supports efficient growth with lower acquisition costs.
- Indicates strong product-market fit.
For investors:
- Predictable recurring revenue increases valuation multiples.
- Shows resilience during market slowdowns.
For product teams:
- Identifies opportunities for upsell and feature improvement.
What is a good NRR?
- Below 80%: Weak retention, high churn.
- 80–99%: Stable but room for improvement.
- 100%+: Strong expansion and healthy product fit.
- 120%+ (best-in-class): Exceptional performance seen in leading SaaS firms.
Strategies to improve NRR
- Enhance onboarding processes.
- Offer personalized upgrades and add-ons.
- Improve product usability and customer experience.
- Provide proactive customer success support.
- Analyze churn reasons and reduce friction points.
NRR vs. GRR (Gross Retention Rate)
| Metric | Includes expansion? | Measures |
|---|---|---|
| NRR | Yes | Overall revenue impact from existing customers |
| GRR | No | Pure revenue retention excluding upsells |
Related concepts
- Customer churn
- Monthly Recurring Revenue (MRR)
- Customer Lifetime Value (CLV)
- Gross retention
- Customer success management
Sources
- SaaStr – SaaS Metrics Guide: https://www.saastr.com/
- Bessemer Venture Partners – Cloud Index: https://www.bvp.com/
- HubSpot – Subscription Metrics: https://www.hubspot.com/
Frequently Asked Questions (FAQ)
1. Can NRR exceed 100%?
Yes. This happens when expansion revenue outweighs losses.
2. Does NRR include new customers?
No. It only tracks existing customers.
3. How often should NRR be calculated?
Monthly and annually for accurate trend analysis.
4. What causes low NRR?
High churn, limited upsell opportunities, or poor product adoption.
5. Which businesses rely most on NRR?
Subscription-based companies, SaaS platforms, and service providers.
