Net Revenue Retention Rate

Date created: Apr 28, 2018  •   Last updated: Oct 14, 2021

What is Net Revenue Retention Rate?

Net Revenue Retention (NRR) Rate is the percentage of recurring revenue retained from existing customers in a defined time period, including expansion revenue, downgrades, and cancels. This churn metric gives a comprehensive view of positive as well as negative changes with respect to customer retention.

Alternate names: Net MRR Renewal Rate, Net Negative Churn Rate, Net Dollar Retention Rate

Formula

ƒ Sum(RR (recurring revenue) at the beginning of the period + expansion RR during the period - downgraded RR during the period - cancelled RR during the period) / (RR at the beginning of the period)
ƒ Sum(renewing customers RR) / Sum(RR of customers due to renew)

How to calculate

Example A: A company has 100 customers, each paying $2,000 per month. MRR at the beginning of the month is $200,000. Within the month, 1 customer adds a $4,000 MRR upgrade, 2 downgrade by $500 each, and 1 customer cancels. NRR = = ($200,000 + $4,000 - ($500 x 2) - $2,000) / $200,000 = $201,000 / $200,000 = 100.5% expressed monthly Example B: A company has 100 customers paying $20,000 for annual subscriptions. Within a one month period, 10 customers are due for renewal, only 9 actually renew, 1 adds a $5000 ARR upgrade, and 2 downgrade their subscription by $2000 each. NRR = ($20,000 x 9) + $5,000 - ($2,000 x 2)) / ($2,000 MRR x 10) = $19,000 / $20,000 = 95.0% expressed monthly

Net Revenue Retention Rate

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What is a good Net Revenue Retention Rate benchmark?

In a SaaS business, a Net Revenue Retention Rate >100% is a growth indicator. Across all SaaS companies, the median Net Retention Rate is ~100%. Higher Annual Contract Value (ACV) products have a higher Net Retention Rates. For SaaS companies selling into small and medium businesses (SMBs), a good Net Retention Rate is 90%. For Enterprise SaaS, 125% is considered a good Net Retention Rate.

Annual Net Dollar Retention Rate

Annual Net Dollar Retention Rate

OpenView, 2020
Annual Net Revenue Retention by ACV

Annual Net Revenue Retention by ACV

SaaS Capital, 2020
Annual Net Revenue Retention Rate by Target Customer

Annual Net Revenue Retention Rate by Target Customer

OpenView, Sep 2019
Annual Net Revenue Retention Rate by Target Customer Type

Annual Net Revenue Retention Rate by Target Customer Type

OpenView, 2019 (n=639)
Annual Net Revenue Retention Rates

Annual Net Revenue Retention Rates

KeyBanc, 2018 (n=200)
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Net Revenue Retention Rate visualization example

In most cases, Net Revenue Retention Rate is tracked monthly or yearly. Although you achieve a fuller picture of retention by tracking both dollar and customer retention, NRR can be a great place to start. Remember to review your NRR percentage at least on a monthly basis to stay informed of negative (and positive!) fluctuations and their impact on your revenue. Take a look at the chart to understand what it looks like when you start tracking NRR regularly:

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Net Revenue Retention Rate

Line Chart

Here's an example of how to visualize your Net Revenue Retention Rate data in a line chart over time.
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More about this metric

Retaining customers is  key for operating a healthy and profitable business. A high Net Retention Rate is an indication that your offering represents a strong value proposition for your customers. Net Retention Rate is an indication of how well a company can not only renew, but generate additional revenue from its customers following an initial sale, in what’s often referred to as a “land and expand” strategy. Net Retention Rate is also an important component of profitability. Acquiring a new customer can be 5 - 25  times more costly than retaining an existing customer. By keeping and expanding your existing customers, you reduce your Customer Acquisition Cost (CAC), therefore increasing your profitability.

A high company growth rate and high Net Retention Rate are correlated according to SaaS Capital research. Gainsight has also found that mature Customer Success practices are correlated with a higher Net Revenue Retention Rate.

For a comprehensive understanding of retention, it’s important to track both the percentage of all customers who renew or cancel contracts, measured by logo churn, and the percentage of all revenue dollars under contract which renew.