What is Net Revenue Retention (NRR) and How To Calculate It



What is your go-to metric for monitoring and improving customer retention? The statistics by Harvard Business Review show that customer acquisition costs 5 to 25 times more than customer retention. Going by these statistics, it is much cheaper to retain an existing customer than to acquire a new one. Besides, a company whose products and services continue to add value to existing accounts is guaranteed customer loyalty.  

For this, the net revenue retention rate remains a critical metric in assessing the profitability of SAAS business models. Notably, SaaS businesses with sustainable customer retention strategies can improve their overall profitability by up to 95%. Further, maintaining a healthy bottom line requires a deeper analysis of the business revenues. It calls for monitoring the relevant metrics on customer acquisition and retention, expansions, upgrades, downgrades, and churns.

Then, what is net revenue retention (NRR)? How can you calculate NRR increase or monitor it for sustainable company growth? Below is an overview of the net revenue retention ratio. Plus, we give valuable tips B2B SaaS companies can implement to address challenges and improve customer retention strategies. 

The Overview

The Definition

What is net revenue retention (NRR)? Net revenue retention (NRR), also known as net retention, net dollar retention (NDR), profit retention rate, or net retention rate, profit retention rate, is a comprehensive metric for B2B SaaS businesses. It assesses the company’s ability to grow its income from current customers in a given timeframe, usually a month, quarter, or year. 

Why Does Net Revenue Retention Matter?

One way to appreciate the importance of the revenue retention rate is by looking at how a business performs if its future revenue streams were to originate solely from existing customers. Do you anticipate these revenue streams to grow, stagnate, or decrease over time? By calculating the net revenue retention, brands can pinpoint customer retention challenges and create strategies to improve customer experiences. Moreover, they make accurate decisions when executing packaging and pricing strategies, leading to sustainable growth.

Relevance of Net Revenue Retention to SaaS Businesses

Today’s B2B SaaS companies are shifting focus from customer acquisition to customer retention. They strive to improve buyer experiences for existing customers. Hence, NRR is more relevant than ever since it indicates the extent of product satisfaction and the ability to retain, upsell, and expand existing customer accounts. 

Calculating the Revenue Retention Rate

The Formula 

The revenue retention rate is derived by expressing the sum of starting revenues from existing customers with additional income through upselling and cross-selling, lost revenues due to downgrades, and churn as a fraction of the starting revenues from the existing customers. These are revenues over a specific month, quarter, or financial year. 

Below is the basic formula for calculating NRR,


  • Beginning of the Period MRR is the starting monthly recurring revenue 
  • Lost MRR is the churned revenue due to such factors as expirations, cancellations, and downgrades
  • Downsell MRR is the downgraded revenue due to contractions
  • Upsell MRR is the expansion revenue due to such factors as upsells, cross-sells, and upgrades

Key Terms in the Net Revenue Retention Formula

Monthly Recurring Revenue

The monthly recurring revenue (MRR) is the predictable monthly income a company expects from its existing customers. For example, a software company with a paid monthly subscription service defines its MRR as the monthly subscription it collects from current customers. By knowing and tracking this figure, brands can anticipate future revenues, plan for future cashflows, forecast growth trends, and make informed strategic decisions about future operations. 

Annual Recurring Revenue

We can substitute MRR with the annual recurring revenue (ARR) when computing the net retention ratio. ARR refers to the total sales from customers within a 12-month period. The metric applies to brands that annualize or provide services for extended periods. 

Customer Churn Rate

Next, customer churn rate refers to the number of customers abandoning the brand or its products and services. Brands calculate the churn rate to anticipate churned revenue or lost MRR and find better ways to retain existing customers. 

Calculate NRR in a Favorable Scenario

Assume Company ABZ has 100 existing customers whose cumulative monthly subscription is $8,000. The company generated an additional revenue of $700 from the customers by cross-selling and offering upgrade options. Likewise, some customers opted out or downgraded their premium subscription to the standard option. The moves resulted in a reduction of revenues by $400 and $300, respectively. 

From this narration, we know,

Beginning of Period MRR                          =  $8,000

Lost MRR/Churn                                        =     $400

Downsell MRR/Downgrades                     =     $300

Upsell/Expansion                                       =     $700


Net Retention Rate (NRR)                      = 

NRR Meaning Above 100%

A high or growing net revenue retention rate indicates that the revenue streams from your existing customers are healthy and increasing due to such factors as upselling and cross-selling. In contrast, a low or declining NRR alerts you of growing customer dissatisfaction. For example, a company may experience massive subscription downgrades and loss of existing customers to competitor brands due to low quality of products or services, poor customer service and response times, unreasonable prices, and lack of a personalized experience. 

An ideal NRR varies from industry to industry. Still, B2B SaaS and subscription-based companies strive for an NRR of at least 100%. At this level, there is consistent growth in the customer base even without adding new customers. That is the revenues from upsells, cross-sells, and upgrades outweigh any losses due to downgrades and churn. The current product or service presents a competitive value proposition to the existing customers. 

Calculate NRR in an Unfavorable Scenario

Here is an example of a  B2B SaaS company whose NRR is below 100%.

Assume Company XYZ has 50 existing customers with a cumulative annual subscription of $5,000. The company generated an additional revenue of $200 from the customers by cross-selling and offering upgrade options. Likewise, they lost subscriptions worth $500 and another $800 due to downgrades and expirations. 

We can gather the following from the above narration,

Beginning of Period ARR                         =  $5,000

Lost ARR/Churn                                       =      $500

Downsell ARR/Downgrades                    =      $800

Upsell ARR/Expansion                             =      $200


Net Retention Ratio (NRR)                      = 

NRR Meaning Below 100%

NRR shows how the business retains revenue and creates new MRR/ARR from existing accounts. In this second scenario, the overall annual revenues from existing customers keep decreasing. 

Net Revenue Retention vs. Gross Revenue Retention vs. Logo Revenue Retention

Gross revenue retention, net revenue retention, and logo revenue retention are vital SaaS metrics. Gross revenue retention refers to the portion of MRR or ARR a company retains after deducting and churned revenues and downgrades. Notably, GRR excludes income from expansions. 

Here is the formula for gross revenue retention, 

Gross Revenue Retention (GRR) = (Begining MRR/ARR - churn - contractions) / Beginning MRR/ARR) X 100%

Hence, Gross Revenue Retention is always below 100%. 

Second, logo revenue retention, also known as customer retention rate,  is similar to gross revenue retention, except it focuses on the customer count instead of revenues. It is an excellent metric for tracking customer dynamics and product experiences. 

Hence, we calculate the customer retention rate using the following formula,

Logo Revenue Retention  = 1 - (Number of customers lost in the period/ Number of customers lost at the beginning of the period)

Then, what is net revenue retention in regard to these other metrics? Net retention rate captures more elements of churn than any other relevant metrics like gross revenue retention or logo retention. It is the premium way to look at churn by SaaS business models. 

Who Owns the Net Retention Rate in an Organization?

Attaining and maintaining a favorable net revenue retention is a company-wide task. Hence, every department in the organization should strive to improve its processes and achieve the target NRR.

Tips for Improving Net Revenue Retention Ratio

Using Customer Onboarding Process

The customer onboarding process is vital in educating customers about the product and service features. Hence, most companies carry out a well-structured customer onboarding process that clearly communicates the products and services value proposition. When done correctly, more customers will sign up for the products and services. And they will be successful in using the products and services. 

In contrast, did you know that up to 55% of returns happen when customers do not fully understand how to use the products or services? Moreover, customers who experience problems using the products or services are less likely to recommend them to their peers. Instead, these frustrated customers will present additional work to your service and operations team as they try to troubleshoot the challenges. Also, some customers may feel cheated into buying the products and services. Such customers leave negative reviews that hurt the brand’s reputation in the long run. 

Tips for an Effective Customer Onboarding Processes

  • Plan for the customer onboarding process. That is, designate a team to draft the customer onboarding process, organize and carry out the customer training and orientations, and manage client relationships to guarantee customer loyalty. 
  • Use SMART onboarding goals. Ensure the onboarding strategies are specific, measurable, achievable, relevant, and time-bound. 
  • Select an onboarding model ideal for the customer needs and complexity of the products or services. Typical customer onboarding models include a self-service model, a low-touch model, and a high-touch model. 
  • Continuously review your customer onboarding process to meet changing client needs and expectations. The review system should have open communication to receive feedback from customers. 
  • Be ready for change, especially if operating in IT markets. Indeed, technology companies may need to update their customer onboarding processes more often to reflect the ever-evolving market trends and customer needs. 
  • Make use of available technology like AI chatbots for additional customer support.

Examples of Effective Customer Onboarding Strategies 

  • Send out emails with helpful resources about the products and services.
  • Follow up with phone calls to deal with any challenges customers face
  • Conduct on-site or virtual customer training sessions on the latest product and service features.
  • If there is a product or service mobile application, add an interactive introduction flow to the app.
  • Provide valuable written, audio, and video content on the company website, blogs, and social media handles to demonstrate how the products and services work.
  • Invite clients to a VIP customer service for a limited time period on a first-come-first-served basis.
  • What is in your onboarding gift box? If you only have branded gift items, switch to freebies that build trust and long-term relationships. 
  • Join a local community forum and share tips and answer queries about the products and services.

Further Tips for Boosting Revenue Retention Rate

 The best way to boost your profit retention rate is by creating scaleable, repeatable, and consistent customer retention programs. These strategies address the probable causes of an unfavorable net revenue retention ratio.  

Improve the Overall  Customer Experience

A positive customer experience will encourage customer loyalty, upselling, and cross-selling. In contrast, customers whose experience with the brand continues to be negative may opt for alternatives from competitor brands or downgrade their options to the lowest package available. 

Address Technical or Quality Issues with the Products or Services

The current products or services may have obsolete features or need additional features to meet the changing needs of existing customers. Also, software companies that upgrade their services without offering adequate user training may experience a sudden decrease in revenues as the customers struggle to keep up with the latest updates. 

Boost Your Customer Support

Bad customer service can have negative consequences on the profit retention rate. Indeed, think of long waiting times, unreachable customer help desk,  transferring customer calls multiple times, and having call center agents with no empathy. With the advent of artificial intelligence, companies replace their poor automated phone prompts with interactive voice response (IVRs) to empower customers to find the answers they need. 

Update Your SaaS Pricing Strategy

Your current SaaS pricing strategy may need to be revised to reflect the market rates. Moreover, switching to a usage-based pricing strategy is a frictionless and cost-effective way of increasing prices. Notably, brands with a strong relationship with their customers can implement price changes with minimal resistance from their customers. The incremental revenue is at zero or minimal cost since no new setup costs exist. And there is a significant upside potential for customers who value your products and services. 

Implementing Customer Segmentation

Segment the existing customers based on their unique attributes, including personas, preferences,  upsell potentials, tenure, and maturity. Then, build a communication plan targeting these customer segments at the right time, with the right messages. Typical communication plans include an email nurture program, webinars, and product launches. 

An Upselling Pricing Strategy for Small and Medium-Sized Saas Companies

As mentioned earlier, an extended NRR reporting period is preferable in arriving at a stable net retention ratio. Hence, brands should measure their net revenue retention on a quarterly or an annual basis. Likewise, a startup B2B SaaS company with an NRR rate below 100% has the potential for growth since it is still in its formative years. Here, the customers are willing to pay more for the products or services in the long term. The startup can offer a starter package that entices new customers to come on board. These customers can opt for add-ons to expand the features and upgrade their subscription options. For this, a usage-based pricing strategy is crucial for small and medium-sized B2B SaaS companies. 

Final Thoughts

Then, what is NRR meaning to B2B SaaS companies? Is the profit retention rate worth pursuing? Well, retention is the new acquisition for B2B SaaS companies. And the net revenue retention rate is the magical metric that captures most aspects relating to customer retention. For this, organizations should have tools that gather relevant data to measure net revenue retention on a real-time basis. Then, they should have a target NRR and monitor their operations to guarantee a sustainable revenue growth model.