Definition

Net Revenue Retention (NRR) is a metric that measures the percentage of recurring revenue retained from existing customers over a specific period, including upgrades, downgrades, and churn, indicating a company's ability to retain and grow revenue from its customer base.

What is Net Revenue Retention (NRR)?

Net Revenue Retention emerged as a critical business metric in the late 2000s with the proliferation of subscription-based business models, particularly in the Software-as-a-Service (SaaS) industry. As companies shifted focus from one-time sales to building long-term customer relationships, they needed more sophisticated ways to measure the ongoing value of their customer base.

Unlike simple customer retention metrics, NRR provides a comprehensive view of revenue behavior by accounting for all customer activity—including expansions, contractions, and churned revenue. Modern revenue operations platforms like Saber help companies track NRR in real-time by consolidating data across systems and providing insights into the factors driving changes in this critical metric.

How Net Revenue Retention Works

NRR calculates the total change in recurring revenue from a cohort of customers over a specific period, typically one year.

• Formula Calculation: NRR = (Starting MRR + Expansion MRR - Contraction MRR - Churned MRR) ÷ Starting MRR × 100%, where MRR is Monthly Recurring Revenue.

• Expansion Revenue: Additional revenue from existing customers through upsells, cross-sells, or price increases that contribute positively to NRR.

• Contraction Revenue: Reduced revenue from existing customers due to downgrades or discounts that negatively impact NRR.

• Churned Revenue: Lost revenue from customers who cancel their subscriptions entirely, directly reducing NRR.

• Benchmark Values: An NRR over 100% indicates revenue growth from the existing customer base even after accounting for churn, while values below 100% show net revenue decline.

Example of Net Revenue Retention

A B2B SaaS company starts the year with $1,000,000 in Annual Recurring Revenue (ARR) from 100 customers. During the year, they lose 5 customers representing $75,000 in ARR (churn) and have 10 customers downgrade their plans, reducing ARR by $50,000 (contraction). However, they successfully upsell 20 customers, adding $200,000 in ARR (expansion). At year-end, their remaining ARR from the original customer cohort is $1,075,000 ($1,000,000 - $75,000 - $50,000 + $200,000), resulting in an NRR of 107.5% ($1,075,000 ÷ $1,000,000 × 100%), indicating healthy revenue growth from their existing customer base despite some churn.

Why Net Revenue Retention Matters in B2B Sales

NRR is widely considered one of the most important metrics for subscription businesses because it directly indicates the health and growth potential of the existing customer base. A high NRR (above 100%) demonstrates that a company can grow revenue even without acquiring new customers, signaling strong product-market fit and customer satisfaction. For B2B sales organizations, NRR helps shift focus from pure acquisition to customer success and expansion opportunities, typically resulting in more efficient growth. Investors heavily value strong NRR figures, often using them as a key factor in company valuations because they indicate sustainable growth potential.