Net Revenue Retention (NRR) Explained for B2B SaaS

TL;DR. Net revenue retention (NRR) measures how recurring revenue from an existing group of customers changes over a period, including expansion, downgrades and cancellations. Calculate it by adding expansion to starting recurring revenue, subtracting contraction and churn, then dividing by starting recurring revenue. Exclude revenue from customers acquired during the period. Read NRR alongside gross revenue retention (GRR), which excludes expansion, to see whether account growth is masking losses. Companies define the metric slightly differently, so state your own definition. One public example is the SecureWorks annual report, which compares a starting group's recurring revenue with the same group's recurring revenue at period end and leaves out customers acquired during the period.

What does net revenue retention measure?

NRR answers a focused question: What happened to the recurring revenue from the customers we already had?

Start with the paying customers present at the beginning of your measurement period. Keep that group fixed, then measure its recurring revenue at the end.

That boundary matters. If you include customers acquired during the period, you are measuring a mixture of retention and acquisition. Strong new sales could then hide losses among existing customers.

NRR measures revenue, not the number of customers retained. A large account expanding can offset several smaller accounts leaving. For the customer-count view, read Logo Churn vs Revenue Churn.

What is the net revenue retention formula?

Use the following formula:

NRR = (Starting recurring revenue + Expansion − Contraction − Churn) ÷ Starting recurring revenue

Express the resulting ratio as a percentage.

Component	Meaning
Starting recurring revenue	Recurring revenue from the customers present at the start
Expansion	Additional recurring revenue from those same customers
Contraction	Recurring revenue lost when those customers reduce their spending but remain
Churn	Recurring revenue lost when those customers leave

Expansion might come from additional seats, a higher plan or another recurring product. Contraction might come from fewer seats, a downgrade or a recurring discount.

Use one revenue basis throughout. For example, compare starting monthly recurring revenue with ending monthly recurring revenue for the same customer group. Do not mix a monthly starting figure with an annual ending figure.

Write down how you treat usage charges, discounts, currency movements and reactivations. These choices need to stay consistent for comparisons to be useful. The SaaS Metrics Glossary provides related terms to align with your reporting definitions.

How does an NRR calculation work?

Illustrative example: every amount and percentage in this section is made up. None is an industry benchmark.

Suppose the customers present at the start of a quarter generate $100,000 in monthly recurring revenue. By quarter-end, their monthly recurring revenue has changed as follows:

Movement within the starting customer group	Illustrative monthly recurring revenue
Starting recurring revenue	$100,000
Expansion from existing customers	+$20,000
Contraction from existing customers	−$5,000
Churn from existing customers	−$10,000
Ending recurring revenue from that group	$105,000

The calculation is:

NRR = ($100,000 + $20,000 − $5,000 − $10,000) ÷ $100,000 = 105%

The original customer group now generates more recurring revenue than it did at the start. Expansion exceeded the combined losses from contraction and churn.

Suppose newly acquired customers also contribute $30,000 in monthly recurring revenue at quarter-end. Exclude that amount from this NRR calculation: those customers were outside the starting group.

Also notice what the calculation does not say. It does not mean quarterly recognised revenue was $105,000. This example compares monthly recurring revenue snapshots across a quarter; it does not total the revenue earned during that quarter.

How is NRR different from GRR?

NRR includes expansion. GRR leaves expansion out. Both exclude new customers.

The gross revenue retention formula is:

GRR = (Starting recurring revenue − Contraction − Churn) ÷ Starting recurring revenue

Question	NRR	GRR
Does expansion count?	Yes	No
Do contraction and churn count?	Yes	Yes
Do new customers count?	No	No
What does it help you examine?	Revenue retained after expansion and losses	Revenue retained before expansion offsets losses

Using the same illustrative numbers, GRR is:

GRR = ($100,000 − $5,000 − $10,000) ÷ $100,000 = 85%

Read the two results together. The illustrative NRR of 105% shows that the starting group grew in revenue overall. The illustrative GRR of 85% shows that it also lost a meaningful portion of its starting revenue before expansion.

Neither result cancels out the other. Ask where the losses occurred and whether expansion is spread across customers or concentrated in a small number of accounts.

What moves net revenue retention?

The formula has three movements to investigate: expansion, contraction and churn. Keep their causes separate before choosing an action.

What creates expansion?

Look for customers buying more because they have more useful work to do with the product. Possible routes include broader team adoption, additional workflows and upgrades tied to a clear need.

Separate price changes from increased adoption in your analysis. Both can raise recurring revenue, but they tell you different things about customer behaviour.

Before building an upgrade prompt, identify what customers gain by upgrading and what evidence shows they need it.

What causes contraction?

Investigate why customers keep the product but reduce their spending. Look for unused seats, narrower deployment, budget changes or a plan that exceeds their needs.

Match the response to the reason. Better onboarding may help an account that never adopted a workflow. A customer reducing its workforce may need a smaller plan.

What causes churn?

Review cancellations by account, revenue lost and stated reason. Compare those reasons with usage and support history rather than treating a cancellation label as a complete diagnosis.

Check whether the product delivered the outcome the customer bought it for. If the original fit was weak, revisit How to Build an ICP before changing the retention programme.

How should a team use NRR?

Build a review that connects the total to decisions:

• Show the revenue bridge. Present starting revenue, expansion, contraction, churn and ending revenue together.
• Compare consistent periods. Keep the period length and revenue definition stable.
• Inspect relevant segments. Separate customer sizes, plans or acquisition cohorts where the distinction helps explain a decision.
• Check account concentration. Identify whether a few expansions dominate the result.
• Assign actions to causes. Give each material loss pattern an owner and a next step.

Use NRR as an outcome measure. Pair each action with a measure closer to the behaviour you want to change, such as completion of a useful onboarding step or adoption across the intended team.

Avoid setting a target without defining the customer group, period and calculation. A precise definition makes the result easier to challenge and reproduce.

What common mistakes should you avoid?

Including new customers. Freeze the starting customer group before calculating movements.

Mixing revenue with cash collected. An annual payment arriving in one month should not become a sudden jump in monthly recurring revenue. Use your defined recurring revenue basis consistently.

Double-counting losses. A reduction followed by cancellation needs to reconcile to the account’s total loss. Do not subtract the original balance twice.

Treating price increases as proof of adoption. Break expansion into useful categories so the team can see what produced it.

Ignoring GRR and customer losses. Net growth can coexist with contraction and cancellations. Review both sides of the bridge.

Using NRR where recurring revenue is absent. For a business selling separate projects or one-off purchases, first decide whether repeat purchasing needs a different measure. Do not label all repeat revenue as recurring revenue simply to calculate NRR.

Calculating from a zero starting balance. The formula requires a non-zero starting denominator. A newly acquired group needs an established starting revenue base before this calculation is meaningful.

What are the frequently asked questions about NRR?

Related reading

• SaaS Metrics Glossary — align the terms used in your reporting.
• Logo Churn vs Revenue Churn — compare customer losses with revenue losses.
• How to Build an ICP — examine customer fit when investigating retention.
• OKRs for SaaS Teams — connect a retention outcome to focused team objectives.