Net revenue retention:
formula and worked example

Revenue growth from customers you already have

Net revenue retention, or NRR, asks a single question: if you stopped winning new customers today, would your recurring revenue from existing ones go up or down over the period? It adds upgrades and extra seats, and subtracts downgrades and cancellations, all measured on the customers who were already paying at the start.

That makes it a favourite of subscription and software businesses, where growth can come either from new logos or from selling more to the same accounts. A figure above 100% means the existing base is more than replacing its own losses, which makes new customer acquisition additive instead of merely compensating.

It is worth remembering what NRR leaves out. Because it follows only the starting customers, it says nothing about how fast you are signing new ones. A company can have excellent NRR and slow overall growth, or poor NRR and fast growth that is expensive to maintain. The two views together describe the business; neither does alone.

Formula, input by input

• Starting MRR: monthly recurring revenue from the customers who were active at the beginning of the period.
• Expansion: extra MRR from those same customers through upgrades, added seats, add-ons or price increases.
• Contraction: MRR lost from those customers who stayed but downgraded or reduced usage.
• Churn: MRR lost because customers in the starting group cancelled completely.

New customers who joined during the period are excluded. Including them turns the measure into plain revenue growth, which is a different question.

Worked example: 100,000 MRR becomes 103,000

A software company starts the quarter with 100,000 in MRR. Existing customers add 15,000 through upgrades, cut back 5,000 through downgrades, and cancelled accounts take away 7,000.

1. 1Start with the opening MRR: 100,000.
2. 2Add expansion: 100,000 + 15,000 = 115,000.
3. 3Subtract contraction and churn: 115,000 − 5,000 − 7,000 = 103,000.
4. 4Divide by the opening MRR and multiply by 100: 103,000 ÷ 100,000 × 100 = 103%.

The same customer group now pays 3% more than it did at the start, despite losing some accounts.

How to interpret 103%

The meaning of a given NRR depends on the stage and type of customer. Treat these as common conventions rather than fixed thresholds.

• Above 100% indicates the installed base expands on its own; below 100% means it shrinks without new sales.
• Businesses serving larger accounts, with usage-based pricing, tend to reach higher NRR than those selling small fixed plans.
• Gross revenue retention, which leaves out expansion, is the companion measure: here it is (100,000 − 5,000 − 7,000) ÷ 100,000 = 88%.
• A big gap between NRR and gross retention means growth is leaning on a handful of expanding accounts, which is a concentration risk.

Cohort age affects the reading. Customers in their first year often expand quickly as they roll out to more teams, then settle. Older cohorts may show flat or declining revenue as products mature. When NRR is reported for the whole base, check that a big new cohort is not masking a weakening older one.

When the starting base grows but movements do not

With 110,000 at the start, the same 15,000 of expansion and 12,000 of losses give 113,000, which is 102.727%. NRR falls slightly because the fixed movements are spread across a bigger base. In practice, movements scale with the base, so a clean comparison across periods needs the same cohort definition, and ideally the same length of period.

Mistakes that inflate or deflate NRR

• Adding revenue from customers who joined during the period, which turns NRR into total growth.
• Mixing annual and monthly recurring figures within the same calculation.
• Counting one-off services, usage overages or setup fees as recurring revenue.
• Reporting only NRR and omitting gross retention, so heavy cancellations are hidden behind a few large upsells.

Pricing actions need a separate note. A general price rise lifts expansion for every customer at once and can push NRR over 100% even when usage and satisfaction are unchanged. That is a legitimate gain, but it is a one-off step and not a sign that customers are buying more. Where possible, show NRR with and without price increases so the underlying product-led expansion remains visible.

Reading NRR alongside a simple plan

If your NRR is 103% and you add new customers worth 10,000 of MRR per quarter on a 100,000 base, revenue grows around 13,000 a quarter, 13%. If NRR were 90%, the same sales effort would deliver growth of only 0%, as new sales merely replace losses. Setting the retention target first is usually cheaper than chasing the sales target alone.

If you report NRR externally, say whether it is calculated monthly, quarterly or annually, whether it is based on contracted or billed revenue, and how price increases are treated. Different choices can move the figure by several points, and without them readers cannot tell whether two numbers measure the same thing.