Net Revenue Retention (NRR), or Net Dollar Retention, is a key metric businesses use, particularly subscription-based models like software-as-a-service (SaaS) companies, to measure the revenue performance from existing customers over a specific period. It reflects how well a company retains and grows its revenue from current customers. Here's what it includes:
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Revenue Retention: NRR starts with the existing customer revenue at the beginning of a period (e.g., the start of the year).
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Subtractions: It subtracts any revenue lost during that period due to customer churn, downgrades, or contract cancellations.
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Additions: It adds back any revenue gained from upsells, cross-sells, or service upgrades purchased by existing customers.
The formula for NRR is usually expressed as a percentage:
If the NRR is over 100%, it indicates that the revenue from existing customers has grown, overcoming any losses from churn or downgrades. An NRR of less than 100% suggests that revenue lost from customer departures and downgrades exceeds the revenue gained from existing customers. Companies aim for a high NRR as it strongly indicates customer satisfaction and product value.