What is Net Revenue Retention (NRR)?
Net Revenue Retention (NRR) is a SaaS metric that measures the revenue retained from existing customers over a period of time, typically a year. It helps to identify how much revenue is being retained from the existing customer base, after accounting for customer losses and expansions.
NRR is calculated by dividing the total revenue from existing customers at the end of the period by the total revenue from the same customers at the beginning of the period, after accounting for lost revenue due to churn and gained revenue due to expansions or upgrades.
Starting MRR - Total MRR from previous period
Expansion MRR -Total new upgrade/upsell MRR from existing customers for current period
Contraction MRR - Total downgrade MRR from existing customers for current period
Churn MRR - Total MRR lost from customers churning in the current period
It is a useful SaaS metric because it helps SaaS companies to understand the overall revenue performance of their existing customer base. This becomes even more useful during an economic downturn when acquiring new customers becomes more challenging and expensive, and thus companies need to focus on retaining their existing customers.
What's a good NRR?
An NRR over 100% indicates that the company is retaining a significant amount of revenue from existing customers, which means that the company has a strong customer retention strategy and is able to expand its revenue base through upsells and cross-sells.
On the other hand, when NRR is less than 100% it indicates that the company is losing revenue from its existing customer base, which may be due to poor customer service or product quality. In an economic downturn, a low NRR can be particularly concerning, as the company may not be able to rely on new customer acquisition to sustain revenue growth.
By tracking NRR, SaaS companies can identify which customers are at risk of churn and proactively work to retain them. NRR also helps companies to identify opportunities for upselling and cross-selling to existing customers, which can help to increase revenue and offset any lost revenue due to customer churn. Therefore, NRR is an important SaaS metric to track during an economic downturn, as it can help companies to prioritize retention efforts and identify opportunities for revenue growth.
