Mastering net revenue retention (NRR) is vital for SaaS businesses striving for sustainable revenue growth. In this article, we’ll cover:

• What NRR is and why it matters for your business health
• How to calculate NRR using key components like expansion revenue and lost revenue
• The difference between NRR and gross revenue retention (GRR)
• Proven strategies to reduce churn and boost customer retention rates
• How to identify and leverage expansion opportunities

Ready to unlock the full potential of NRR? Let’s dive in!

What is net revenue retention (NRR) in SaaS?

Net Revenue Retention (NRR) is the ultimate measure of how well your SaaS business retains and grows revenue from existing customers. Unlike basic revenue metrics, NRR highlights growth from upgrades, cross-sells, and up-sells, while accounting for churn and downgrades.

For subscription-based companies, NRR answers a vital question: are your existing customers driving growth? An NRR above 100% means you’re thriving, creating sustainable financial growth without relying solely on acquiring new customers.

Leading SaaS companies track NRR closely, using it as the compass for their retention plan and scaling efforts.

Why is net revenue retention important?

If NRR were a movie star, it would be the main character in the SaaS world, because nothing tells the story of your business health quite like it. While acquiring new customers is exciting, building revenue expansion on the foundation of a loyal and engaged existing customer base is where the magic happens.

For SaaS companies, net revenue retention important is an understatement. This metric reveals whether your business is holding water or springing leaks.

💡 High NRR means your customer retention rates are strong, and you’re generating more revenue from account expansions than you’re losing to churn or downgrades. It’s the mark of a company that knows how to not only retain customers but also make them more valuable over time.

NRR also acts as a barometer for user satisfaction. Customers who stick around and upgrade their subscriptions are clearly finding value in your product. This, in turn, fuels consistent growth and boosts confidence in your business from investors, stakeholders, and employees alike.

In the competitive world of subscription businesses, NRR is your secret weapon. It’s a key performance indicator that shows how well you’ve mastered the art of revenue retention, helping you make strategic decisions that improve the overall health of your business and ensure long-term success.

How to calculate net revenue retention rate

Net revenue retention formula

Calculating net revenue retention (NRR) might sound intimidating, but it’s simpler than you think. The formula is as follows:

NRR = ((Initial Recurring Revenue + Expansion Revenue - Lost Revenue) ÷ Initial Recurring Revenue) × 100

Let’s break it down:

• Initial recurring revenue: This is your baseline—how much revenue you’re generating at the start of a period from your existing customers. It forms the foundation for tracking changes in your monthly recurring revenue (MRR).
• Expansion revenue: This is the cherry on top. It includes revenue increase from upsells, cross-sells, and upgrades. Expansion showcases how much value you’re creating for your consistent customer base.
• Lost revenue: Unfortunately, not every story has a happy ending. Revenue loss occurs when customers churn, downgrade, or cancel their subscriptions. These revenue churn factors are subtracted from your totals.

By plugging these numbers into the formula, you can assess your net retention rate and determine if your subscription business is growing or merely maintaining. The higher the NRR, the better your business is performing in terms of retaining and expanding revenue.

Net revenue retention examples

1. Strong retention with revenue expansion:

• Initial recurring revenue: $100,000
• Expansion revenue: $20,000
• Revenue loss: $5,000
• NRR = (($100,000 + $20,000 - $5,000) ÷ $100,000) × 100 = 115%

This means your existing customers are generating 15% more revenue, which is excellent for consistent growth.

2. Neutral retention:

• Initial recurring revenue: $100,000
• Expansion revenue: $10,000
• Revenue loss: $10,000
• NRR = (($100,000 + $10,000 - $10,000) ÷ $100,000) × 100 = 100%

Here, expansion offsets revenue loss, meaning you’re holding steady but not growing.

3. Poor Retention:

• Initial recurring revenue: $100,000
• Expansion revenue: $5,000
• Revenue loss: $20,000
• NRR = (($100,000 + $5,000 - $20,000) ÷ $100,000) × 100 = 85%

In this case, user churn outweighs growth, signaling a need for a stronger retention approach.

What is a good net revenue retention rate in SaaS?

A good NRR reflects your SaaS business’s health. An NRR above 100% shows your existing customers are generating more revenue than you’re losing to churn or downgrades. For subscription companies, 110-130% is excellent, driven by revenue expansion like upsells and upgrades.

NRR benchmarks vary by customer segments. Enterprise SaaS companies often hit 120-130% due to larger account expansions, while SMB SaaS companies may see 100-110% as strong due to higher churn.

If your NRR is below 100%, focus on reducing churn and growing expansion opportunities. High NRR signals sustainable growth and long-term profitability.

That being said, let's have a closer look at benchmaks.

Net revenue retention benchmarks

The SaaS industry uses NRR benchmarks to evaluate overall business health. Generally, an NRR over 100% is considered good, as it indicates growth from existing customers. Here’s a breakdown:

• 80-100% NRR: Average performance. This shows you’re retaining revenue but not growing it significantly. It’s time to rethink your retention plan.
• 100-110% NRR: Solid performance. This means your retained recurring revenue is healthy, and you’re adding some growth through revenue expansion.
• 110-130% NRR: Excellent performance. This level is common among high-performing SaaS companies that excel in customer success and drive strong account expansion

Achieving a good NRR often depends on reducing user churn and creating opportunities for upselling and cross-selling.

Consistently monitoring your NRR against industry benchmarks ensures you’re on the right track for sustainable growth.

What’s the difference between NRR & gross revenue retention (GRR)?

While net revenue retention and gross revenue retention are both critical revenue metrics, they measure different aspects of revenue retention.

• GRR: This metric focuses on the revenue retained from your starting recurring revenue, excluding any growth from expansion. It highlights how well you’re holding onto revenue without considering upsells or upgrades.
  GRR = ((Initial recurring revenue - Lost revenue) ÷ Initial recurring revenue) × 100
• NRR: By contrast, NRR factors in revenue expansion, offering a more comprehensive view of how much revenue your same customers contribute over time.

In simple terms, gross revenue retention measures how good you are at retaining customers, while NRR shows how much those customers are helping your company grow.

A strong GRR sets the foundation for achieving a higher net revenue retention rate, making both metrics essential for evaluating revenue fluctuations and guiding strategic decisions.

The role of monthly recurring revenue in NRR

MRR and net revenue retention are closely connected. MRR reflects the predictable recurring revenue from your customer base, while NRR shows whether that revenue grows or shrinks over time. Think of MRR as the foundation and NRR as the growth built on top.

💡 Increasing MRR through revenue expansion boosts NRR, while churn or downgrades shrink it. Healthy MRR growth signals strong retention, while sudden dips can highlight churn issues.

By focusing on growing MRR through account expansion, SaaS companies can drive consisitent growth and improve overall company health.

What team should own NRR?

Net revenue retention (NRR) is a team effort, with the customer success team often leading the charge. They work with your existing customer base to reduce churn and boost recurring revenue retained.

However, it’s not just about retention. Sales teams drive account expansion, while the product team enhances value and reduces downgrades.

Alignment across these teams, supported by shared metrics and a customer success platform, is essential for improving your NRR and driving continuous income expansion.

How to increase your net revenue retention

Reduce churn

Churn is the silent revenue killer, and reducing it should be a top priority. Start by identifying why customers leave—whether it’s due to poor onboarding, lack of engagement, or unmet expectations.

Use a customer success platform to proactively address issues and deliver tailored solutions. Regular check-ins, personalized support, and product training can go a long way toward boosting customer satisfaction.

Happy customers stick around, and fewer churned customers mean higher recurring revenue retained.

Limit downgrades

Downgrades, where customers shift to cheaper plans, erode your revenue just as much as churn. The key is to understand why customers are downgrading. Are they not seeing the value?

Offer them incentives to stay on higher tiers or create flexible pricing plans that fit their needs. Preventing customer downgrade situations keeps your revenue retention rate healthy.

Find expansion opportunities

One of the easiest ways to increase NRR is to grow revenue expansion through upsells, cross-sells, or upgrades. Analyze customer segments to identify which ones would benefit most from premium features, add-ons, or expanded services.

Regularly communicate these options in a way that highlights their value. When you generate more revenue expansion, your NRR improves, making this a cornerstone of any effective retention strategy.

Invest in email marketing

Email marketing is a powerful tool for both customer retention and revenue growth. Use targeted email campaigns to nurture your existing customers, offering personalized tips, feature announcements, and reminders about upgrades.

Highlight success stories or suggest price increases tied to increased value.

Done right, email marketing can drive user satisfaction, reduce churn, and prompt account expansions—all of which contribute to increasing net revenue retention. Think of it as your secret weapon for keeping customers engaged and happy.

Common pitfalls to avoid

• Neglecting customer churn: Ignoring churn metrics can lead to missed opportunities for retention improvements.
• Focusing only on new revenue: Over-prioritizing new customer acquisition undervalues the potential of your current customers.
• Failing to address downgrades: Allowing downgrades without intervention erodes your revenue base.
• Poor onboarding experience: Subpar onboarding frustrates customers and increases churn.
• Lack of cross-team collaboration: Misaligned teams miss opportunities to enhance NRR.

By avoiding these pitfalls, SaaS companies can stay on track for sustainable revenue growth.

The road to stronger net revenue retention

Achieving stronger net revenue retention starts with reducing customer churn, limiting downgrades, and focusing on expansion opportunities.

Align your teams, prioritize customer satisfaction, and invest in tools like email marketing to drive engagement. A proactive retention strategy ensures sustainable growth and a thriving, loyal customer base.

Ready to boost your NRR? Let Digi Storms help!

Our email marketing strategies for SaaS products are designed to engage your customers, drive expansions, and reduce churn.

Contact us today to unlock your next stage of sustainable revenue growth.