Net Revenue Retention (NRR)

NRR shows whether existing customers are spending more or less over time. It is a key measure for subscription businesses, particularly software companies that sell to other businesses.

It is usually calculated by starting with recurring revenue from a set of customers at the beginning of the period, adding expansion revenue from those customers, subtracting contraction and churn, and dividing by the starting revenue. New customers are excluded.

For example, a company starts the year with 10,000,000 of annual recurring revenue. During the year, existing customers add 2,000,000 through upgrades, while downgrades reduce revenue by 500,000 and cancellations by 700,000. NRR is 10.8 million divided by 10 million, or 108%.

An NRR above 100% means the company grows even without new customers, which investors value highly. NRR is also called net dollar retention. It differs from gross revenue retention, which ignores expansion and shows only how much revenue is lost.