Net revenue retention (NRR, sometimes called net dollar retention) answers one question: of the recurring revenue we had from our existing customers a year ago, how much do we have from those same customers today? It's the headline metric for the post-sale side of the business.
Worked example
A company starts the year with $5,000,000 of annual recurring revenue (ARR). Over the next 12 months, the customers it had on day one change as follows:
| Item | Amount |
|---|---|
| Starting ARR (customers at the start of the year) | $5,000,000 |
| + Expansion (upsells, extra seats, price increases) | $700,000 |
| − Contraction (downgrades) | $200,000 |
| − Churn (customers who left) | $400,000 |
| Ending ARR from the same customers | $5,100,000 |
| NRR = $5,100,000 ÷ $5,000,000 | 102% |
Above 100% means the existing base grew, even after the losses. Below 100% means it shrank.
The same company also won new customers worth $1,500,000 of ARR during the year. They are not in the calculation. Add them to the top line and NRR becomes ($5,100,000 + $1,500,000) ÷ $5,000,000 = 132%, a number that says nothing about retention.
Who counts: starting customers only
NRR is a closed group. Fix the list of customers on the first day of the period and track only them:
- Customers won during the period are excluded, along with any expansion they buy in that period.
- A customer who churns and later returns is new business when they come back, not a retained customer.
- Use one revenue basis, usually ARR or monthly recurring revenue × 12. One-off services and implementation fees are not recurring revenue.
Most teams measure NRR over a trailing 12 months. Whatever period you choose, keep it fixed so that one quarter's figure can be compared with the next.
Always pair NRR with gross revenue retention
NRR nets expansion against losses, so strong upsells can hide a leak. Gross revenue retention (GRR) uses the same starting customers but leaves expansion out:
| Measure | Calculation | Result |
|---|---|---|
| NRR | ($5,000,000 + $700,000 − $200,000 − $400,000) ÷ $5,000,000 | 102% |
| GRR | ($5,000,000 − $200,000 − $400,000) ÷ $5,000,000 | 88% |
At 102%, the base looks healthy. GRR shows the company loses 12% of its starting revenue every year before upsells. That's $600,000 of churn and downgrades that expansion is covering. Report both, side by side.
Common mistakes
- Including new customers. The most common way NRR gets inflated. Only customers who existed at the start of the period count, on both the top and bottom of the fraction.
- Reporting NRR without GRR. Expansion can mask a churn problem until expansion slows.
- Mixing bookings and ARR. A three-year contract booked at full value is three years of ARR; count only the annual amount.
- Changing the period. Switching between quarterly and annual NRR, or between calendar and trailing periods, breaks the trend.
- Counting price increases without saying so. They're legitimate expansion, but if most of your NRR comes from price rather than usage, say so.
Retention also decides whether acquisition pays off: read NRR and GRR alongside your CAC payback period. The free RevOps Foundations course covers NRR in Lesson 3, "The metrics that matter".