Net revenue retention measures how recurring revenue from a fixed group of existing customers changed over a period, usually twelve months. It includes expansion such as upgrades and extra seats, and subtracts downgrades and cancellations. A figure above 100% means existing customers grew in value even after losses, so the company would grow without any new customers.
The formula
The starting group is fixed at the beginning of the period. Revenue from customers who joined during the period is excluded, which keeps the measure about retention rather than acquisition.
NRR = (starting recurring revenue + expansion - contraction - churn) ÷ starting recurring revenue
Example: ($1,000K + $150K - $30K - $70K) ÷ $1,000K = 105%Why it matters
NRR shows whether the product keeps delivering value after the sale. A company with strong NRR can spend more to acquire customers, because each one tends to grow. A company with weak NRR has to keep replacing lost revenue before it can grow at all.
It also shows whether acquisition is bringing in the right customers. If accounts from one channel or segment retain much worse than others, that channel's apparent cheapness may be misleading.
Retention by acquisition source
Splitting NRR by the channel that originally acquired each customer is a useful check on growth spending. Customers who found the product through search for a specific problem may retain differently from those who came through a discount campaign. The sample sizes per channel can be small, so treat the comparison as a signal rather than proof.
Example
Reading NRR alongside GRR
Hypothetical company Saltmarsh Labs reports NRR of 112% and gross revenue retention of 85%, both illustrative. The gap tells the team that strong expansion from larger accounts is hiding significant churn among small ones, so it looks at onboarding for its smallest plan.
Common mistakes
Including new customers
Adding revenue from customers acquired during the period inflates NRR. Keep the starting group fixed.
Reading NRR without GRR
High expansion can mask high churn. Report gross revenue retention next to it.
Questions
It depends heavily on segment and pricing model. Compare against your own history and against companies selling to similar customers, rather than a single benchmark.
