Net Revenue Retention
What is Net Revenue Retention (NRR)? Definition & Formula
The Definition
Net Revenue Retention (NRR), sometimes called net dollar retention, measures how much recurring revenue you retain from your existing customer base over a period—including expansion, and net of downgrades and churn. It answers one question: if you signed zero new customers, would your revenue grow or shrink?
The formula, measured against the same cohort a year apart:
NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR
In Plain English
NRR is a leaky-bucket test where the customers themselves can add water. If existing accounts upgrade, buy more seats, and expand faster than others cancel, the bucket fills even with the tap off. An NRR above 100% means your customer base grows revenue on its own—the closest thing to compounding a software business has, and the reason it’s watched so closely.
It also quietly reveals product health. Customers don’t expand with a product they’re not using; sustained NRR above 100% is usage voting with its wallet.
What the Numbers Mean
NRR | What It Signals |
|---|---|
Below 100% | Churn and downgrades outpace expansion |
100%–110% | Solid; base holds and grows modestly |
Above 120% | Best-in-class; expansion engine humming |
NRR differs from logo retention, which counts customers, not dollars. You can lose small logos and still post strong NRR if your big accounts expand—one reason the two metrics belong side by side rather than one standing in for the other.
Why Investors Watch It
NRR is a leading indicator of durable growth. It captures product stickiness, pricing power, and expansion motion in a single number, and it’s far harder to game than new-logo bookings. Pairing it with churn rate and ARR gives the full retention picture—what’s leaving, what’s growing, and the net of the two. For a subscription business, it’s often the single most predictive number on the dashboard. A company can miss its new-logo target and still compound nicely on the strength of NRR alone; the reverse—strong new sales masking a leaky base—is the trap that catches growth teams late, once the base is too large to repair quickly.