What is Net Revenue Retention?
Net Revenue Retention (NRR) is one of the most important metrics for subscription-based businesses, especially in the SaaS world. It measures how much recurring revenue a company retains from its existing customers over time. But it doesn’t stop there—it also factors in upgrades, expansions, downgrades, and churn, giving you a true picture of how much revenue your current customers are generating.
Here’s the key: NRR only looks at your existing customer base. It excludes new customers entirely. So, it’s focused on what happens after a customer signs on—whether they stick around, spend more, or downgrade their service. In short, NRR shows whether your customer relationships are growing or shrinking.
Why Does NRR Matter?
Simply put, NRR is a direct indicator of your business’s health. It tells you if your customers are not only staying but also increasing their spending. The higher your NRR, the stronger your customer retention and expansion efforts are.
For top-performing companies, it’s common to see NRR exceed 100%. This means that existing customers are driving more revenue than they did initially—either by upgrading or adding new services. It’s a powerful sign that your product or service is delivering long-term value.
On the flip side, if your NRR is below 100%, it’s a warning sign. It means churn or downgrades are eating into your revenue. Customers are leaving or spending less, which puts pressure on your growth. For SaaS companies, especially, keeping NRR above 100% is crucial to sustainable growth.
Understanding NRR in Depth
Gross Revenue Retention vs Net Revenue Retention
NRR is often confused with Gross Revenue Retention (GRR), but they measure different things. While NRR factors in upgrades, expansions, downgrades, and churn rate, GRR is a bit more straightforward—it simply measures how much of your recurring revenue you’re keeping from existing customers, without accounting for any expansions or upsells.
In other words, GRR looks at the base revenue from customers and doesn’t consider growth. If you want to know how much your existing customers are expanding, NRR is the metric you need.
The Impact of High NRR
High NRR is a clear sign that your customers see value in your product or service—and are willing to invest more over time. It shows that not only are you retaining customers, but you’re also growing their accounts through cross-selling, upselling, and expansions.
For SaaS companies that are scaling, a high NRR (often 120% or higher) is a strong indicator of future revenue growth. It shows that you’re not just filling the top of the funnel with new customers—you’re deepening your relationship with the ones you already have.
For CEOs and finance teams, NRR is a goldmine of insights. It helps them forecast future performance, identify where to allocate resources, and understand the long-term potential of the business. Simply put, NRR is a powerful tool for predicting sustainable growth.
How to Calculate Net Revenue Retention
Calculating NRR might seem complicated at first, but it’s actually pretty straightforward once you break it down step by step.
Here’s the net revenue retention formula:
Let’s explain each part:
- Starting MRR: This is your Monthly Recurring Revenue at the start of the period (usually a month).
- Expansion: Revenue gained from existing customers who upgrade, buy add-ons, or increase their spending.
- Contraction: Revenue lost from customers who downgrade to a lower-priced plan.
- Churn: Revenue from existing customers that is lost when they cancel their subscriptions completely.
A Simple Example
Let’s say your business starts the month with $100,000 in recurring revenue (Starting MRR).
- Expansion: You get $20,000 more in upgrades and additional services from current customers.
- Contraction: A few customers downgrade, costing you $5,000.
- Churn: You lose another $10,000 from customers who cancel.
Now, plug these numbers into the formula:
NRR = ($100,000 + $20,000 - $5,000 - $10,000) ÷ $100,000
NRR = $105,000 ÷ $100,000 = 1.05 or 105%
What does that mean? You not only kept your existing customers, but you also grew their spending by 5%. A great result!
What Happens in Different Scenarios?
- High Expansion, Low Churn: Let’s say your Expansion is $30,000, but your Churn is only $5,000. Your NRR would be:
($100,000 + $30,000 - $5,000) ÷ $100,000 = 125%
In this case, your customers are spending 25% more with you than they were at the start of the month. That’s a fantastic sign of business growth!
- High Churn, Low Expansion: Now imagine your Churn is $20,000, and Expansion is only $5,000. The formula would look like this:
($100,000 + $5,000 - $20,000) ÷ $100,000 = 85%
This means you lost more revenue from cancellations than you gained from upgrades, which is a red flag for your business.
Common Pitfalls in NRR Calculation
While the formula is simple, a few common mistakes can lead to incorrect numbers:
- Leaving Out Churn or Expansion: Missing any churned customers or upsell data means your NRR won’t reflect reality.
- Confusing Downgrades with Churn: Make sure to track downgrades (customers spending less) separately from churn (customers leaving entirely).
- Wrong Timing on Revenue Recognition: Ensure you're calculating based on when the revenue is actually recognized, not just when deals are signed.
Industry Benchmarks for Net Revenue Retention
Now that you know how to calculate NRR, let’s talk about how your NRR stacks up against others in your industry. Benchmarks give you a clear picture of whether you’re crushing it or have room for improvement.
What Are Industry Benchmarks, and Why Do They Matter?
Industry benchmarks are basically performance averages for specific metrics, like NRR, across different sectors. These benchmarks let you compare your business to others in your industry and help you see if your NRR is above or below the norm.
Why does this matter? Because benchmarks can tell you whether your NRR is strong or needs improvement, and they can help guide your growth strategy. If you’re way below the industry average, you might have retention issues that need to be addressed. If you’re above it, congrats! You’re likely doing something right with your customer retention and expansion efforts.
NRR Benchmarks by Industry
NRR isn’t one-size-fits-all—it varies by industry. Let’s break down what’s a good net revenue retention rate by looking at some typical benchmarks:
- SaaS (Software-as-a-Service): The gold standard. Top-performing SaaS businesses usually have NRR well above 100%, with many exceeding 120%. This means customers are sticking around and spending more over time, which is crucial for long-term growth.
- Retail: Retail businesses tend to have lower NRR, often around 60-80%. This is because retail experiences more frequent churn, and customers typically don’t have the same recurring relationship with the business as they do with a subscription-based model.
- Finance: The financial sector generally sees NRR between 90-100%. Customers tend to stay longer, and there’s often more potential for cross-selling financial products, but churn still poses a challenge.
These net revenue retention benchmarks give you a rough idea of where your business might stand, depending on your industry. But keep in mind, hitting the average isn’t the goal—you want to aim higher.
Using Benchmark Data to Drive Strategy
So, what do you do with this data?
Simple: Use it as a roadmap to assess your own performance and set improvement goals.
- If you’re below the benchmark, it’s a wake-up call. You’ll want to dig into why customers are churning or downgrading and take action to improve retention.
- If you’re at or above the benchmark, you’re doing well, but there’s always room to grow. Even a small increase in NRR can significantly boost your revenue over time.
Look at benchmarks not as a ceiling but as a baseline. They help you set realistic goals while giving you insight into what’s possible in your industry. Use this data to refine your customer retention strategy, prioritize expansion efforts, and continually push your NRR higher.
Best Practices for Boosting Your Net Revenue Retention
Improving NRR doesn’t happen by chance. It requires deliberate strategies focused on keeping customers happy and expanding their investment in your business. Here are some of the best practices to make sure your NRR is on an upward trajectory.
1. Segment Your Customers Like a Pro
Not all customers are the same, so why treat them that way? Customer segmentation is key to identifying your high-value groups—the ones most likely to stick around and spend more. By dividing your customer base into meaningful segments, you can focus your retention and upsell efforts where they matter most.
How to do it: HubSpot can organize your customers by factors like industry, spending behavior, or product usage. This way, you can deliver more personalized marketing and customer service. Prioritize your efforts on customers who show the highest potential for expansion, and give them the attention they deserve.
2. Level Up the Customer Experience
Happy customers stay longer—and spend more. That’s a direct correlation. If you want to boost NRR, improving the customer experience should be at the top of your to-do list.
Practical tips:
- Get feedback regularly: Send out customer feedback surveys to understand their pain points and areas where you can improve.
- Personalize customer service: Using tools like HubSpot’s Service Hub, you can provide tailored service that makes your customers feel valued. The more personalized the experience, the more likely customers are to stay and expand their relationship with you.
3. Master the Art of Upselling and Cross-Selling
Your existing customers are the most valuable asset you have when it comes to generating new revenue. Upselling (encouraging customers to upgrade) and cross-selling (offering complementary products) can significantly boost your NRR.
How to do it: Set up automated workflows in your CRM, like HubSpot, to recommend relevant upsells or cross-sells at just the right time. Use playbooks to guide your team on how to approach these opportunities. The goal is to offer more value, not just push more products—so be strategic about what you offer and when.
4. Get Serious About Reducing Churn
Churn is the enemy of a healthy NRR, so addressing it early is crucial. Identifying at-risk customers before they leave can save you revenue and relationships.
How to reduce churn:
- Use predictive analytics: Leverage data to spot customers who may be at risk of churning, like those with decreasing engagement or frequent support issues. HubSpot can help flag these red flags early.
- Proactive problem-solving: Don’t wait for customers to complain—reach out with personalized messages, offer solutions, and remind them of the value your product brings to their business. A little attention can go a long way in keeping customers on board.
Leveraging Technology and Systems to Optimize Net Revenue Retention
Technology is your best friend when it comes to optimizing NRR. By leveraging the right tools and systems, you can ensure your revenue data is accurate, visible, and actionable—making it easier to boost retention and revenue growth.
1. Get Your FinOps in Order for Better Revenue Recognition
FinOps, or financial operations, is all about managing your revenue with precision. Proper FinOps practices help you track and recognize revenue accurately, giving you real-time visibility into critical metrics like Monthly Recurring Revenue (MRR), Net New Revenue, Expansions, Contractions, and Churn.
Why it matters: Accurate revenue recognition is essential for measuring NRR correctly. Without it, you’re flying blind. By integrating tools like HubSpot with finance platforms such as QuickBooks or Xero, you can streamline your revenue reporting and keep your NRR calculations on point.
How to do it: Use data transformation tools like Coefficient to sync data between your CRM and finance systems, ensuring all your revenue metrics are updated in real-time. This eliminates manual entry errors and gives you a clear view of where your recurring revenue stands at any moment.
2. Ensure Visibility and Data Integrity
Visibility into your revenue data is key. You can’t optimize NRR if you don’t have a clear, accurate snapshot of what’s happening across your business. That’s where data integrity comes in—making sure your revenue data is not only up-to-date but also synced seamlessly between systems.
How to maintain visibility: Automate data syncs between your finance tools and CRM platforms. For example, integrating HubSpot with your finance system ensures that your revenue snapshots are always accurate and up to date. This gives you the insights needed to make informed decisions, whether it’s about retention efforts or where to focus upsell opportunities.
Why automation is a game-changer: Manual data entry can lead to errors and delays in reporting, which can distort your understanding of NRR. By automating the flow of revenue data between systems, you’re not only reducing human error but also gaining real-time insights that help you stay on top of your NRR goals.
