Sales
Net Revenue Retention (NRR)
Net Revenue Retention (NRR) measures the percentage of recurring revenue retained from existing customers over a given period, factoring in upgrades, downgrades, and churn. This metric is crucial for understanding the financial health and growth sustainability of subscription-based businesses.
HOW TO MEASURE
NRR is calculated by adding any expansion revenue (from upsells or cross-sells) to the initial recurring revenue, subtracting lost revenue from churn, and then dividing the result by the initial recurring revenue. Multiply by 100 to express as a percentage.
HOW TO IMPROVE
Customer Success: Invest in customer success initiatives to increase customer satisfaction and reduce churn.
Upsell Opportunities: Identify and capitalize on opportunities for upselling and cross-selling to existing customers.
Product Improvements: Continuously enhance the product based on customer feedback to increase its value.
Customer Engagement: Implement programs that increase engagement and dependency on the product.
FORMULA
NRR = ( Starting MRR+Expansion Revenue−Churned Revenue / Starting MRR ) × 100%
EXAMPLE
A SaaS company starts the year with $100,000 in monthly recurring revenue. During the year, they gain an additional $20,000 from upsells but lose $5,000 due to customer churn. The NRR would be: NRR=(100,000+20,000−5,000/100,000)×100%=115%. This means the company not only retained its existing revenue but grew it by 15% through expansions.
DEPARTMENT USAGE
Finance: To forecast revenue and measure financial health.
Sales: To understand the impact of their efforts on revenue retention and expansion.
Customer Success: To monitor customer health and success in driving revenue expansion.
Product Management: To align product developments with the factors driving revenue changes.
View the collection of Metrics Workshops.