What is net revenue retention (NRR), and how is it calculated?

Net revenue retention measures how much recurring revenue you keep and grow from an existing group of customers over a period, after expansion, contraction and churn. You calculate it by taking the recurring revenue those customers produce at the end of the period and dividing it by what the same customers produced at the start.

What Is Net Revenue Retention (NRR)? Formula

The formula

Start with recurring revenue from customers who existed at the beginning of the period. Add expansion from those customers, subtract downgrades, subtract revenue from those who left. Divide the result by the starting figure. New customers acquired during the period are left out entirely, which is the point: the measure isolates what the existing base does on its own.

Why investors weigh it

A business that grows its existing customers needs less new selling to grow overall, and that growth tends to be cheaper. A figure above the starting base means the customer base expands even if sales stops, and a figure below it means the company must replace losses before it can grow.

How it gets flattered

By choosing the cohort carefully, by counting one-time services as recurring, by reporting the best segment as if it were the whole, or by including price increases that customers have not yet renewed at. In diligence, rebuild it from billing data by cohort rather than accepting the summary figure.

What to look at beside it

Gross revenue retention, which ignores expansion and shows how much simply leaks away. The split between expansion from more seats and expansion from price. And concentration: a strong figure carried by two large accounts is a different business from one spread across many.

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