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Net Revenue Retention (NRR)

Definition

Net Revenue Retention (NRR) -- sometimes called Net Dollar Retention (NDR) -- measures how much recurring revenue you retain from your existing customer base over a given period, accounting for expansion (upsells, cross-sells, seat additions), contraction (downgrades), and churn (cancellations). It is the single best metric for SaaS business health.

The formula: (Starting MRR + Expansion - Contraction - Churn) / Starting MRR x 100.

An NRR above 100% means your existing customers are spending more over time -- your revenue grows even if you never acquire another customer. Snowflake reported 158% NRR in 2022, meaning their existing customers spent 58% more year-over-year without a single new logo. That's the power of strong NRR: it compounds. An NRR below 100% means you're losing revenue from existing customers, and new sales are just filling a leaky bucket.

NRR differs from gross retention (which excludes expansion) and from churn rate (which measures customer count, not revenue). A company can have 5% customer churn but 120% NRR if remaining customers expand enough to offset the losses.

Why It Matters for Product Managers

NRR is where product quality shows up in the financials. If your product delivers enough value that customers expand their usage, NRR rises. If your product stagnates and customers consolidate vendors or downgrade, NRR falls. There's no way to game it with marketing spend or sales tactics -- it reflects what happens after the sale.

For PMs, NRR breaks down into three levers you can directly influence. Expansion depends on building features that create natural upsell paths (more seats, more storage, more advanced capabilities). Figma's expansion comes primarily from seat growth -- they build collaboration features that make additional seats valuable. Contraction happens when customers don't use features they're paying for -- a product adoption problem. Churn reflects fundamental value gaps or unresolved pain points.

Investors treat NRR as a proxy for product-market fit. When Snowflake went public with 158% NRR, it signaled that customers couldn't get enough of the product. When a company reports NRR below 100%, it raises immediate questions about competitive positioning and product value. Bessemer Venture Partners publishes a SaaS benchmark index where the median public SaaS NRR is 110% -- companies below that face valuation pressure.

How It Works in Practice

  • Establish your baseline. Calculate NRR monthly and trailing 12-month. Monthly gives you early warning signals; trailing 12-month smooths out seasonal variation and contract timing. Break NRR into its components: what percentage comes from expansion, contraction, and churn?
  • Segment by customer profile. NRR varies dramatically by segment. Enterprise customers often have 130%+ NRR (longer contracts, more seats, bigger expansion). SMB customers might run 90% NRR (more churn, less expansion). Understanding segment-level NRR tells you where to invest.
  • Identify expansion drivers. Which features trigger upsells? Which usage patterns predict seat expansion? Slack found that teams hitting the 10,000-message threshold almost always added seats within 60 days. Build product experiences that make those expansion moments frictionless.
  • Attack contraction first. Contraction is easier to fix than churn because the customer is still paying -- they've just reduced their commitment. Investigate why customers downgrade: are they consolidating tools, cutting budgets, or not using premium features? Each cause has a different product response.
  • Build NRR into your planning process. Set NRR targets at the segment level and link product roadmap items to their expected NRR impact. A feature that improves enterprise NRR from 125% to 130% might be worth more than a feature that acquires 50 new SMB customers.

    • Common Pitfalls

  • Conflating customer retention with revenue retention. You can retain 95% of customers while NRR drops below 100% if remaining customers downgrade. Always track both metrics. Revenue retention tells you the financial truth.
  • Ignoring contraction as a signal. Many teams focus on churn prevention and ignore downgrades. But contraction is often the leading indicator of future churn -- a customer who downgrades is 3x more likely to churn within 12 months (ChurnZero data).
  • Artificial expansion inflation. If your NRR is high because you raised prices on existing customers, that's not real expansion -- it's a one-time bump that may trigger churn next renewal. Separate organic expansion (customers choosing to buy more) from pricing-driven expansion.
  • Measuring only at the company level. Overall NRR can mask segment problems. A 115% NRR might be 140% enterprise and 85% SMB -- meaning your SMB product is in trouble, hidden by enterprise success.

    • Related Concepts

    Churn rate measures the customer loss component of NRR -- but NRR gives the full revenue picture including expansion. ARR/MRR are the baseline metrics that NRR is calculated against. Strong NRR is the financial signature of high retention rate combined with effective expansion motions.

    Related Terms

    Churn RateARR / MRR (Annual Recurring Revenue / Monthly Recurring Revenue)Retention Rate

    Frequently Asked Questions

    What is the formula for net revenue retention?+
    NRR = (Starting MRR + Expansion MRR - Contraction MRR - Churned MRR) / Starting MRR x 100. For example: if you start the month with $100K MRR, gain $15K from upsells, lose $3K from downgrades, and $5K from cancellations, your NRR is ($100K + $15K - $3K - $5K) / $100K = 107%. This means your existing customer base is growing at 7% per month even without any new customers.
    What NRR benchmarks should SaaS companies target?+
    Below 100% means your existing customer base is shrinking -- a red flag. 100-110% is acceptable for SMB-focused products. 110-130% is strong for mid-market SaaS. Above 130% is elite-tier, typically seen in usage-based products like Snowflake (158%), Datadog (130%+), or Twilio (131%). Public SaaS companies in the top quartile average 120%+ NRR. Investors increasingly view NRR above 120% as a signal of genuine product-market fit.
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