Net Revenue Retention (NRR) is a financial metric used to evaluate a company's ability to retain its existing customers and drive revenue growth over a specific period. It measures the percentage of revenue that a company retains from its existing customer base, after accounting for customer churn, upgrades, and downgrades.
To calculate NRR, a company typically starts with the total revenue generated from its existing customer base at the beginning of the period. This includes all recurring revenue from existing customers, such as subscription fees or ongoing service fees. The company then subtracts any revenue lost due to customer churn, which occurs when a customer cancels their subscription or service. The remaining revenue is the company's gross revenue retention (GRR).
Next, the company calculates the revenue gained from customers who upgraded their subscription or service during the period. This includes any additional fees or charges for upgraded services. The company then subtracts the revenue lost from customers who downgraded their subscription or service during the period. The remaining revenue is the company's net revenue retention (NRR).
A high NRR indicates that a company is successful in retaining and growing its customer base, while a low NRR suggests that the company may be struggling to retain customers or is experiencing slow revenue growth. By monitoring NRR, companies can identify areas for improvement in customer retention and revenue growth, and make strategic decisions to address these areas.
Overall, NRR is a valuable metric for SaaS companies, as it provides insights into the health of their existing customer base and revenue growth potential.