Metric

Net Revenue Retention

Net Revenue Retention includes everything related to MRR changes and is a good indicator of customer success.
Filippo Burattini
2 minutes

Net revenue retention (NRR) is the amount of revenue that a company retains after including expansion (new customers and upgrades to bigger plans: silver → gold), contractions (downgrades to smaller plans: gold → silver) and cancellations.
As a single metric it includes everything related to the changes in the MRR and is usually expressed as a percentage, in this case it is called Net Revenue Retention Rate.

Formula

How to calculate Net Revenue Retention

Real world case

Let’s apply the formula to an example company. Let’s say that our company has 100 subscribers at $50/month, so our MRR is 100 * 50 = $5,000. In this same month, we add 25 new subscribers (all at $50/month), which equates to 25 * 50 = $1,250, then 5 subscribers upgrade to a bigger plan going from $50/month to $100/month, our Expansion is (5 * 100) - (5 * 50) = 500 - 250 = $250. We then have 2 subscribers than downgrade to a smaller plan, going from $50/month to $10/month, our Contraction is (2 * 50) - (2 * 10) = 100 - 20 = $80. And finally, we have 5 cancellations, all from the standard plan, so our Churn is 5 * 50 = $250.Putting it all together with the above formula we have

An example of calculating net revenue retention for a SaaS company

A net revenue retention rate bigger than 100% means that your business is growing, while a NRR lower than 100% means that your business is shrinking.

How to improve Net Revenue Retention

Once you understand the formula you see that there are four levers that can be pulled:

  • New MRR: get more paying subscribers, obviously!
  • Expansion: nurture and upsell your existing customers to bigger plans (it's often cheaper to upsell your current customers than it is to gain new customers)
  • Contraction: reduce the number of users that downgrade to smaller/cheaper plans
  • Churn: improve your retention and reduce churn

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