Key takeaways
- NRR = (starting ARR + expansion minus contraction minus churn) divided by starting ARR.
- It measures existing customers only. New customers don't count.
- Gross revenue retention leaves out expansion and can't exceed 100 percent.
Net revenue retention formula and example
Take the customers who were paying 12 months ago and their ARR then. Measure the same customers' ARR today. Divide today's figure by the starting figure.
| Item | Amount |
|---|---|
| ARR from the group 12 months ago | $1,000,000 |
| Expansion (upgrades, more seats) | +$200,000 |
| Contraction (downgrades) | minus $50,000 |
| Churn (cancellations) | minus $100,000 |
| Same customers' ARR today | $1,050,000 |
| Net revenue retention | 105% |
Why investors ask about NRR
NRR shows whether customers get more value over time. A company with NRR above 100 percent grows even without new sales; one well below it has to replace lost revenue before it can grow. Investors usually want it by customer segment, because a few large expansions can hide churn among smaller customers.
Checking an NRR claim
Ask for the period, the group of customers and whether it is a cohort or a blended figure. Recalculate it from a customer-level revenue export if you can. Early-stage companies often have too few customers or too short a history for NRR to mean much, so treat a single figure with care and record it as founder reported until checked.
Common confusions
- NRR versus gross revenue retention (GRR): GRR excludes expansion.
- Revenue retention versus logo retention: losing many small customers can still leave NRR high.
- Net dollar retention (NDR) is another name for the same idea.