GRR focuses on the percentage of recurring revenue retained from customers, excluding any revenue from upgrades or expansions, while NRR provides a more comprehensive view by including upsell and cross-sell revenues in addition to the retained revenue.
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Net revenue retention (NRR) is a critical metric for evaluating your business’s long-term health. It reflects how much value your product delivers to current customers—and whether they’re satisfied with things like pricing, support, and reliability.
NRR doesn’t just tell you if customers are sticking around. It also shows whether they’re expanding—buying more, upgrading plans, or increasing usage. That makes it a powerful signal for customer success and the overall strength of your SaaS business model.
It’s easy to focus on acquiring new customers when you’re in growth mode. But don’t overlook the cost of that growth. On average, it’s 12.5 times more expensive to acquire a new customer than to retain or expand an existing one.
That’s why paying close attention to NRR is so important. It helps you measure sustainable growth—not just how many new customers you’re landing, but how much value you’re creating (and keeping) over time.
Key insights
- Gross revenue retention (GRR) focuses on the percentage of recurring revenue retained from customers, excluding any revenue from upgrades or expansions, offering a pure measure of customer retention
- Net revenue retention (NRR) provides a comprehensive view by including upsell and cross-sell revenues in addition to retained revenue, indicating both retention and growth
- Both GRR and NRR are crucial for understanding your organization’s ability to preserve and expand its revenue streams
- While GRR is a more conservative metric, NRR can exceed 100 percent, reflecting the additional revenue from existing customers
- Monitoring these metrics helps organizations evaluate customer satisfaction, success strategies, and financial health
- Effective retention strategies focus on enhancing customer success, aligning pricing strategies with value provided, and targeting high-retention customer segments
What is net revenue retention?
Net revenue retention (NRR), sometimes referred to as net dollar retention (NDR), is a metric that compares the change in revenue generated by a cohort of customers from one period to another. NRR accounts for lost revenue from customer attrition or downgrades as well as any increases in total revenue (annual recurring revenue or monthly recurring revenue) over a set period of time.
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How to calculate net revenue retention
Net revenue retention measures the recurring revenue from your customers over a set period of time. Net revenue retention rate looks at the amount of change from one period of time to another. Curious about how to find net revenue? For the retention calculation, you divide the current monthly or annual recurring revenue (MRR or ARR) for a given cohort of customers by the recurring revenue for that same cohort in a previous time period of the same length—say, last month, last quarter, or last year. Below is the net revenue formula that can be used.
There are two basic inputs for a net revenue retention calculation:
- Starting MRR/ARR: The MRR or ARR from the previous period (last month, last quarter, last year, etc.)
- Change in MRR/ARR: Total MRR or ARR change from upsells, downgrades, and churn for the set of customers in your “Starting MRR/ARR” metric compared to the current period.
At first glance, this seems like a simple metric to calculate. However, there are so many different ways to interpret “Starting MRR/ARR” and “Change in MRR/ARR,” all of which depend on the specific context of your business.
Why does net revenue retention rate matter?
Net revenue retention rate is a key metric that accounts for churn or downgrades (i.e., loss of customer value) and for expansion revenue or upgrades (i.e., upsells or cross-sells to current customers). The net revenue calculation is key to knowing the rate at which you are retaining revenue and helps you understand your overall business health and the growth trajectory of your business. For example, if you stopped adding new customers tomorrow, how much revenue could you expect to bring in next month? How about next quarter?
What is gross revenue retention?
Gross Revenue Retention (GRR) is a metric that shows the amount of recurring revenue (expressed as a percentage) retained from one given period to another. GRR denotes a company’s ability to preserve its core revenue streams, explicitly sidelining revenues generated from enhancements like upsells or cross-sells. For businesses operating on subscription models, especially in the SaaS realm, GRR is a vital metric spotlighting pure customer retention without the skew of additional revenue avenues.
How to calculate gross revenue retention
Gross revenue retention is always equal to or lower than net revenue retention, and it can’t be greater than 100 percent. The basic calculation is the same as net revenue retention, but the MRR for each individual customer in the current month can’t exceed the MRR for that customer from one year ago (remember, gross retention can factor in downgrades, but not upgrades from your existing customer base).
Much like the calculation for NRR, gross revenue retention is based on two main inputs:
- Starting MRR/ARR: The MRR or ARR from the previous period (last month, last quarter, last year, etc.)
- Downgrade/churn MRR/ARR: Total MRR or ARR downgrade and churn amounts from the set of customers in your “Starting MRR/ARR” up through the current period.
The complexity of this calculation comes down to the way you define these inputs. If you have a strong definition of ARR/MRR, upgrades, downgrades, and churn in your organization, calculating NRR and gross revenue retention should be simple.
Why does gross revenue retention rate matter?
By now, you know that gross revenue retention tells you how much revenue you’re holding onto from existing customers over time—while net revenue retention includes growth from upsells and expansions.
Gross retention is especially valuable because it excludes the effects of price increases or account growth. That makes it a more conservative measure—and a stronger indicator of how well you’re retaining revenue from your current customer base, without relying on additional sales to offset churn.
In other words, it reflects long-term customer stability at its core.
The challenges of tracking revenue retention rates
Tracking retention rates is relatively straightforward. If you know the current value of each customer account—and how that value compares to last month or last year—you can calculate retention without much trouble.
The harder part? Understanding the story behind the number.
Like most SaaS metrics, revenue retention doesn’t exist in a vacuum. It’s one piece of a larger puzzle, and it only becomes truly meaningful when viewed in context.
Take this scenario: your net revenue retention (NRR) is strong, but gross retention is low. What happens to your NRR if a significant number of customers downgrade in the next 12 months?
Or consider this: would you rather lose 10 customers paying $10,000 each—or one customer worth $150,000? On paper, the second scenario might look better. But depending on your customer acquisition cost (CAC) and customer lifetime value (LTV), the impact may be very different.
To truly understand customer retention, you need to look beyond headline numbers like MRR and ARR. It’s about examining the surrounding metrics—the ones that explain why your retention looks the way it does.
That’s where things get more complex. These insights rely on accurate, consistent data across multiple systems. And stitching that data together—cleanly and in real time—is often the most challenging part of telling the full story.
<<Get your numbers right with the SaaS metrics cheat sheet.>>
The bottom line
Understanding your net revenue retention rate helps you understand how your customers are feeling about you. Understanding your net revenue retention rate in context helps you understand how your business is feeling financially and how it will fare in the future.
Net revenue retention FAQs
What is the formula to calculate net revenue retention?
The formula to calculate net revenue retention is starting MRR plus the change in MRR divided by Starting MRR. Starting MRR (or ARR) is MRR/ARR from the previous period. Change in MRR/ARR is the change in MRR/ARR from upsells, downgrades, and customer churn.
What is the formula to calculate gross revenue retention?
The formula to calculate gross revenue retention is churn MRR plus downgrade MRR divided by starting MRR. Downgrade and churn MRR/ARR are your Starting MRR/ARR values minus downgrade and churn (or customer attrition) amounts from your customer sets.
What is the difference between gross and net revenue retention?
Your net revenue retention rate (NRR) uses changes in ARR/MRR (including upsells, downgrades, churn, and renewals) to show revenue growth from your existing customer base. It helps you understand the momentum of your SaaS business and its path to overall profitability. Gross revenue retention (GRR) doesn’t factor in expansion revenue, instead focusing solely on downgrades, non-renewals, and revenue churn rate. That means GRR is a more conservative metric that can never exceed 100 percent (unlike NRR, which should ideally be well over 100 percent).
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How do you increase net revenue retention?
Increasing net revenue retention is all about thinking beyond new business bookings to focus not just on how you retain customers — but also on how you continue to earn more money from your customer base year after year. There are many different ways that SaaS companies can achieve a higher NRR, including:
- Improving overall logo retention by investing in customer success, mapping product roadmaps to customer pain points, and improving support experiences.
- Updating your SaaS pricing strategy to better align with the value you provide to customers and include natural expansion and upsell opportunities at renewal.
- Revising go-to-market strategies to focus more resources on customer segments that have higher net revenue retention rates (i.e., certain industries, companies demographics, product lines, etc.).
- Gaining deeper insight into relevant metrics like LTV and CAC so leadership can assess product-market fit and make more proactive strategic decisions.
What is net dollar retention?
Net dollar retention (NDR), which is another term for net revenue retention (NRR), is a metric that measures changes in recurring revenue between two different periods. Businesses can calculate NDR on a monthly basis using monthly recurring revenue (MRR) as the base metric, or on an annual basis using annual recurring revenue (ARR) as the base metric.
