NRR Meaning: Understanding Net Revenue Retention
If you work in SaaS, you’ve likely heard abbreviations like ARR, NRR, or even MQL.
One common metric being used is NRR but what does it mean?
Net Revenue Retention (NRR) is a key metric by which businesses measure revenue growth or loss within their existing customer base over a specific period.
In this blog, we’ll discuss NRR’s meaning, why it’s important for your business, and how to improve retention.
What Is NRR (Net Revenue Retention)?
Net Revenue Retention (NRR) measures revenue retained from existing customers, factoring in upgrades, downgrades, and churn. It shows how well a company retains and expands its customer base. If your NRR is over 100%, you keep your customers and grow their revenue.
Why NRR Is Important For Your Company
NRR helps you see the health of your business. A high NRR means your customers are satisfied and spending more.
It’s a sign of customer loyalty and product value. Companies with high NRR can grow without constantly acquiring new customers, which is often more costly.
Measuring NRR can guide your business strategies for improving customer relations and revenue.
How to Calculate Net Revenue Retention
Now that you know the meaning of NRR, let’s learn how to calculate it for your business.
To calculate NRR, follow these steps:
- Start with Monthly Recurring Revenue (MRR) at the beginning of the period.
- Add revenue gained from upsells and expansions.
- Subtract lost revenue from downgrades and churn.
- Divide the result by the MRR at the beginning and multiply by 100.
The formula is:
[(MRR of the last month + Expansion revenue – Downgrades – Churn) / MRR of the last month] x 100% = NRR
What Is a Good Net Revenue Retention Rate?
A good NRR rate is typically over 100%. This means you’re growing your revenue from existing customers.
Top-performing companies can have an NRR of 120% or higher. If your NRR is lower than 100%, it indicates revenue loss. Aim for a high NRR by focusing on customer satisfaction, providing value, and minimizing churn.
Net revenue retention rate is typically categorized into three benchmarks. Each one is a benchmark and an indicator of your company’s health.
NRR Above 100%
Having an NRR above 100% means your business is retaining its customers and expanding revenue from its existing customer base through upsells, cross-sells, and price increases.
It also means your business isn’t solely reliant on acquiring new customers for growth. This is often an indicator of strong product-market fit and customer loyalty.
NRR above 100% is a strong sign for SaaS companies that can lead to high evaluations.
NRR between 80-100%
Having an NRR between 80% and 100% means that your business retains most of its revenue from existing customers, but there is little to no expansion revenue.
The company can maintain its current revenue levels, but growth might depend more on acquiring new customers. There’s room for growth, whether it’s reducing churn or figuring out the indicators of churn.
NRR below 80%
Having an NRR below 80% means your business is losing a significant portion of its revenue from existing customers, which shows problems with customer retention and satisfaction.
A low NRR is a warning sign that the company could struggle to maintain its revenue without significantly ramping up new customer acquisition efforts. There are likely challenges with poor product-market fit, lack of product value, or customer support and engagement issues.
Differences between NRR vs. MRR vs. ARR
The terms MRR and ARR are commonly used in software. They measure revenue retention for different time periods. MRR measures revenue retention monthly, while ARR measures revenue retention annually.
If you’ve heard of NRR, you’re likely already measuring both.
NRR (Net Revenue Retention) measures how much revenue you keep from existing customers after accounting for upgrades, downgrades, and cancellations. It focuses on customer loyalty and growth from within your current customer base.
MRR (Monthly Recurring Revenue) is the total predictable revenue you expect every month. It’s a snapshot of your income from subscriptions and recurring charges.
ARR (Annual Recurring Revenue) converts MRR into a yearly figure. It’s great for understanding long-term revenue, especially with annual subscriptions.
Here’s a quick comparison:
| Metric | Focus | Useful For |
| NRR | Revenue from current customers | Measuring customer loyalty |
| MRR | Monthly revenue | Tracking short-term revenue |
| ARR | Yearly revenue | Planning long-term growth |
Difference between NRR & Gross Revenue Retention (GRR)
Net Revenue Retention (NRR) and Gross Revenue Retention (GRR) are commonly used together. They help measure how well a business retains revenue over time but are used to measure specific components of health.
Gross Revenue Retention (GRR) measures the revenue your company keeps without considering expansion revenue. It focuses only on losses from churn, downgrades, and downsells.
The formula for GRR is:
GRR = (Current Period Revenue – Previous Period Revenue) / Previous Period Revenue x 100
The easiest way to remember the key difference is that NRR accounts for growth from existing customers while GRR measures just retention without growth.
NRR vs GRR Example:
| Metric | Includes | Focuses On |
| NRR | Expansion, Churn, Downgrade, Downsell | Total customer value change |
| GRR | Churn, Downgrade, Downsell | Revenue retention without growth |
7 Effective Ways to Improve NRR
Retaining retention = continuous delivery of value to customers.
To boost NRR, focus on delivering recurring value, reducing churn, avoiding downsells, enhancing upsells and cross-sells, offering excellent support, using NPS to catch unhappy customers, and utilizing a health score calculator.
1. Recurring Value
Creating recurring value for your customers ensures they continue to benefit from your product or service. Consistently update your product or services and ensure each new feature adds value to your customers.
Beyond technology, ensure your team provides exceptional customer service. Personalized tips and resources can help clients use your product more effectively.
Send regular newsletters or educational emails highlighting how to adopt and use your solution more effectively. These practices can help your customers feel they are gaining ongoing value.
2. Reduce Churn
Reducing churn is crucial for improving NRR. Proactively engage with customers to understand their needs and challenges. Early intervention can prevent dissatisfaction from leading to cancellations.
Regular check-ins and satisfaction surveys help identify potential issues. Create a dedicated team to manage and resolve customer complaints quickly.
If you’re in customer success, hold monthly check-ins or quarterly business reviews to consistently deliver value and re-align expectations.
Good relationships and responsive support can significantly lower churn rates.
3. Limit Downsells
Downsells occur when customers switch to a less expensive plan. Limiting this requires understanding why customers might want to downgrade.
Offer flexible plans and demonstrate the value of higher-tier options. Bundling features at higher tiers can show customers they’re getting more for their investment.
Educational content about the benefits of premium plans can also prevent downgrades.
4. Improve Upselling and Cross-Selling
Effective upselling and cross-selling can boost your NRR. Train your sales team on land and expansion strategy. This helps them identify opportunities for additional products or services to add value.
Use predictive analytics to recommend appropriate upgrades based on customer usage patterns. Create packages that offer combined benefits at a discounted rate.
Timely suggestions during customer interactions increase the chances of successful upsells and cross-sells.
5. Offer Support and Improve Customer Experience
Exceptional support enhances customer experience and retention. Provide multiple channels for customer assistance, including chat, email, and phone.
Having a knowledgeable and friendly support team is crucial. Collect feedback regularly to improve your service. Implement a knowledge base or FAQ section on your website to help customers resolve issues independently.
Good support and positive experiences keep customers loyal.
Use a sales-to-customer success handoff process to ensure both teams create a positive experience from the sales process to becoming customers.
6. NPS to Proactively Detect Unhappy Customers Before They Churn
Net Promoter Score (NPS) can help identify unhappy customers early. Conduct NPS surveys regularly to gauge satisfaction levels.
Pay attention to low scores and follow up promptly to address concerns. Use feedback to improve your products and services.
By listening and acting on customer feedback, you can resolve issues before they lead to churn.
7. Health Score Calculator
A health score calculator helps assess the overall health of customer accounts. Develop a scoring system including usage frequency, support interactions, and NPS scores.
Regularly review health scores to identify at-risk customers. Proactive engagement with customers showing declining scores can improve retention.
Adjust your strategies based on health score insights to maintain strong customer relationships.
Need Help Improving NRR?
If you’re looking to improve the NRR of your company then reach out to have an initial strategy discussion with our team here.
We’ll review your revenue operations with you to determine what gaps are causing low net revenue retention. Then, we’ll provide three actionable takeaways for you to implement.
Frequently Asked Questions
A good NRR rate typically exceeds 100%. An NRR of 120% or higher for SaaS companies is often considered best-in-class. This shows your business is growing revenue from existing customers even if no new customers are added.
In SaaS (Software as a Service), NRR stands for Net Revenue Retention. It measures the percentage of recurring revenue retained from existing customers over a given period, accounting for upgrades, downgrades, and cancellations.
NRR (Net Revenue Retention) and NDR (Net Dollar Retention) are often essentially the same metric. Both metrics track the revenue retained from existing customers, considering expansions and contractions. However, terminology can vary between companies, with some distinguishing subtle differences in how contractions or specific revenue types are treated in the calculations. Generally, NRR might more explicitly focus on revenue changes while NDR could be used more broadly to include other value metrics like contract value.
