Net Revenue Retention
Net Revenue Retention (NRR) is a metric used by subscription-based companies to measure the percentage of recurring Revenue retained from existing customers over a specific period, factoring in upgrades, downgrades, and churn. It helps businesses understand how effectively they are growing Revenue from their existing customer base.
NRR is calculated using the formula:
NRR = (Starting MRR + Expansion MRR – Churned MRR) / Starting MRR × 100%
Where:
- Starting MRR: Monthly Recurring Revenue at the beginning of the period.
- Expansion MRR: Additional Revenue from existing customers due to upsells, cross-sells, or upgrades.
- Churned MRR: Revenue lost from existing customers due to downgrades or cancellations.
Examples:
- If a company starts the month with $100,000 in MRR, gains $10,000 from upsells, and loses $5,000 from churn, the NRR would be:
- In another case, if a company has $200,000 in MRR at the start, $20,000 in expansion, and $30,000 in churn:
$100,000 + $10,000 – $5,000 = $105,000
NRR = ($105,000 / $100,000) × 100% = 105%
$200,000 + $20,000 – $30,000 = $190,000
NRR = ($190,000 / $200,000) × 100% = 95%
Importance: A high NRR indicates strong customer satisfaction and effective upselling strategies, while a low NRR may signal issues with customer retention and the need for improvement in product offerings or customer service.