How do you apply Net Revenue Retention (NRR) in practice?

Calculate NRR monthly: (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100. If NRR 120%, you have an exceptional business — invest aggressively in acquisition since each customer compounds in value.

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Retention

intermediate📖 6 min read

Net Revenue Retention (NRR)

Also known as: NRRNet Dollar RetentionNDRNet Revenue Retention RateDollar-Based Net Retention

NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100%

💡The Concept

NRR measures the percentage of recurring revenue retained from existing customers over a period, including upgrades, downgrades, and churn. An NRR above 100% means your existing customers are spending MORE over time even without new sales — your revenue grows automatically. NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100. Best-in-class SaaS companies have NRR of 120%+: Snowflake (158%), Datadog (130%), Twilio (127%). NRR is the single most predictive metric for long-term SaaS success — VCs have said it's the first metric they check.

⚠️The Trap

The trap is confusing NRR with gross retention. Gross retention ignores expansion — it's just (Starting MRR − Contraction − Churn) ÷ Starting MRR. A company with 90% gross retention and 30% expansion has 120% NRR, which looks great. But if expansion revenues come from price increases (not increased usage), they're masking a retention problem. If you raise prices 20% but lose 10% of customers, NRR looks positive but you've damaged trust. Sustainable NRR comes from customers CHOOSING to spend more, not being forced to.

🎯The Action

Calculate NRR monthly: (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100. If NRR < 100%, your business is a leaky bucket — fix churn and build upsell paths before spending on acquisition. If NRR is 100-110%, focus on expansion revenue (usage-based pricing, premium tiers, cross-sells). If NRR > 120%, you have an exceptional business — invest aggressively in acquisition since each customer compounds in value.

⚡Pro Tips

NRR > 100% creates 'automatic growth.' A company with 120% NRR and zero new customers still grows 20% annually from existing customers alone. This is why high-NRR companies command the highest valuation multiples — their growth is partially self-funding.

Usage-based pricing is the most natural path to high NRR because revenue scales automatically with customer success. Snowflake's 158% NRR comes from customers consuming more compute as their data needs grow — no sales interaction needed.

Track NRR by cohort vintage. If your 2022 cohort has 130% NRR but your 2024 cohort has 95% NRR, you're acquiring lower-quality customers over time. The blended NRR is hiding a deteriorating trend.

🚫Common Myths

✗Myth: “NRR is only relevant for enterprise SaaS”

✓Reality: Consumer and SMB SaaS can achieve high NRR through usage-based expansion and tier upgrades. Canva (SMB/consumer) has strong NRR because free users upgrade to Pro, and Pro users upgrade to Teams. Spotify has strong NRR because individual subscribers add family members. The mechanism differs but the principle is universal.

✗Myth: “High NRR means you don't need to worry about churn”

✓Reality: NRR can mask dangerous churn with unsustainable expansion. If you lose 15% of customers annually but survivors expand 20%, NRR is 105% — looks fine. But that 15% churn rate means your customer base is unhealthy. When expansion slows (it always does eventually), the underlying churn problem is exposed.