What is Net Revenue Retention (NRR) in SaaS?
Net Revenue Retention measures how much recurring revenue you keep from existing customers over time, including expansions, upgrades, downgrades, and cancellations.
👆 By the way, an interesting fact: High NRR companies (120%+) typically trade at 18-22x revenue multiples, while low NRR companies (less than 100%) trade at 4-6x revenue multiples!
Why is Net Revenue Retention important?
Sustainable Growth 📈
- Shows organic growth from existing customers
- Indicates product stickiness
- Reveals upsell success
Investment Appeal 💎
- Key metric for investors
- Influences company valuation
- Shows business sustainability
Customer Success 🌟
- Reflects customer satisfaction
- Shows product value
- Indicates market fit
How to calculate the Net Revenue Retention rate
Net Revenue Retention Formula
NRR = (Starting MRR + Expansion – Contraction – Churn) / Starting MRR × 100
Where:
Starting MRR = Monthly Recurring Revenue at period start
Expansion = Additional revenue from existing customers
Contraction = Revenue lost from downgrades
Churn = Revenue lost from cancellations
Example Time! ✨
Let’s say:
- Starting MRR: $100,000
- Expansion: $30,000
- Contraction: $5,000
- Churn: $10,000
Calculation:
- NRR = ($100,000 + $30,000 – $5,000 – $10,000) / $100,000 × 100 = 115%
What is a good Net Revenue Retention rate in SaaS?
- Under 100%: 😟 Net revenue loss
- 100-105%: 😐 Stable but needs improvement
- 105-120%: 😊 Healthy growth
- Above 120%: 🤩 Outstanding growth!
What’s the difference between NRR & Gross Revenue Retention (GRR)?
Net Revenue Retention (NRR)
- Includes expansions/upgrades
- Can exceed 100%
- Shows growth potential
- Full revenue picture
Gross Revenue Retention (GRR)
- Excludes expansions/upgrades
- Cannot exceed 100%
- Shows retention strength
- Base revenue stability
Think of it this way:
- GRR = How good you are at keeping what you have
- NRR = How good you are at growing what you have
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