How to Calculate Net Revenue Retention (NRR)

Net Revenue Retention (NRR) is a critical metric for SaaS and subscription-based businesses. It measures how revenue from existing customers evolves over time, accounting for both growth and loss. NRR is particularly useful for understanding customer satisfaction, expansion potential, and long-term revenue sustainability. Importantly, NRR excludes revenue from new customer acquisition, focusing solely on the existing customer base.

What Is the NRR Formula?

The standard formula for calculating NRR is:

NRR (%) = [(Starting MRR + Expansion MRR - Churned MRR - Contraction MRR) / Starting MRR] × 100

Alternatively, you can express it as:

NRR = (Recurring revenue at the end of the period from existing customers) / (Recurring revenue at the start of the period from the same customers) × 100

Breaking Down the Components

1. Starting MRR (Monthly Recurring Revenue)
   This is the recurring revenue at the beginning of the period, based solely on existing customers.

2. Expansion MRR
   This includes additional revenue generated through upsells, cross-sells, upgrades, or added users within the same customer base.

3. Churned MRR
   This reflects the revenue lost due to customer cancellations during the period.

4. Contraction MRR
   This refers to revenue reduction caused by downgrades, reduced usage, or plan changes by existing customers.

Example Calculation

Let’s assume the following:

• Starting MRR: $100,000

• Expansion MRR: $20,000

• Churned MRR: $5,000

• Contraction MRR: $3,000

Plugging into the formula:

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NRR = [(100,000 + 20,000 - 5,000 - 3,000) / 100,000] × 100 NRR = (112,000 / 100,000) × 100 = 112%

This means that, even without adding new customers, your existing customer base generated 12% more revenue by the end of the period.

Why NRR Matters

• An NRR above 100% indicates that the business is expanding revenue from its existing customer base, a strong sign of product value and customer satisfaction.

• An NRR of 100% means revenue from existing customers is stable.

• An NRR below 100% is a warning sign that customer churn or downgrades are outweighing expansion efforts.

Final Thoughts

Net Revenue Retention is one of the most telling indicators of a healthy, scalable SaaS business. A strong NRR demonstrates not only customer loyalty but also your ability to drive more value within your existing relationships. Monitoring and improving this metric should be a top priority for any recurring revenue company.