Landing a new customer feels like a victory, but keeping them is how you build a business that lasts. Net revenue retention acts as the heartbeat of your financial model. It tells you if users love your product enough to stick around and spend more, or if they are quietly looking for the exit. This metric does more than track churn. It proves to investors and internal stakeholders that you have found true product-market fit.
Great finance teams use NRR to forecast cash flow without the guesswork. When this number is healthy, you stop fighting to replace lost revenue and start compounding growth from the people who already trust you.
This guide gives you the tools to understand these mechanics. You'll get the formula, relevant benchmarks, and a clear look at common calculation errors. We also show how to track and model retention scenarios directly in Runway so you can plan your next move with precision.
Understanding NRR and its core formula
Net revenue retention (NRR) tells you the percent of recurring revenue you hold onto and grow within your current customer base over a certain period. It captures expansion, downgrades, and churn, all in one view.
Here's the formula:
NRR = (starting mrr + expansion revenue – contraction revenue – churn revenue) / starting MRR × 100
- Starting MRR: monthly recurring revenue at the beginning of your period
- Expansion revenue: more revenue from existing customers such as upsells, cross-sells, or added users
- Contraction revenue: revenue lost when customers downgrade or use less
- Churn revenue: revenue lost when customers leave for good
It's up to you if you use MRR for a monthly view or ARR for yearly analysis. Most teams watch both for fast signals and long-term trends.
When your NRR is over 100%, existing customers bring in more revenue than before, even after churns or downgrades. Below 100% means you're losing ground with your current base.
Why track and review your NRR?
Net revenue retention shapes your forecasts, planning, and how you show business health. Investors and acquirers see it as one of the top SaaS metrics. It proves if your product delivers ongoing value.
- Project revenue stability and growth momentum; no need to rely just on new signups
- See if customer acquisition spending pays off by tracking customer stay and growth
- Show product-market fit with customer expansion patterns
- Back up your valuation with hard retention data
NRR ties straight to your customer lifetime value (LTV). Customers who grow with you mean bigger LTV, while churn cuts it short. NRR also helps you track your unit economics and CAC payback.
Strong NRR takes pressure off your sales team. If you keep 120% of your revenue from current customers, you don't need to win tons of new ones to keep growing. At 80%, you need to replace lost revenue before you can get ahead.
Different retention metrics to know
Net revenue retention isn't the only number that matters. Knowing other retention metrics helps you spot issues and talk performance clearly.
Gross revenue retention (GRR)
Gross revenue retention shows what percent of revenue you hold from existing customers, before any expansion. GRR zeroes in on retention by leaving out upsells or cross-sells.
Here's how you calculate GRR:
GRR = (starting MRR – contraction revenue – churn revenue) / starting MRR × 100
GRR can't go over 100%. It shows your pure retention before expansion covers churn. A company with 95% GRR and 120% NRR is doing great on retention and expansion. If you have 70% GRR and 100% NRR, you're masking churn with aggressive upsells.
Logo retention rate
Logo retention captures what percent of customers (not revenue) stay active over time. Use it to look at customer count changes, not just dollars.
logo retention = (customers at end of period / customers at start of period) × 100
Logo retention reveals which customer segments may need more attention. Maybe enterprise is strong, but smaller accounts drop off.
Dollar-based net retention (DBNR)
Dollar-based net retention (DBNR) tracks a specific cohort and compares their revenue over time. It's cohort-based retention, ideal if you have long sales cycles or complex contracts that can mess with the standard NRR.
For example, follow all customers who signed in Q1 2024 and check their revenue in Q1 2025 versus day one. This shows trends by group, making the data less noisy.
DBNR is great for companies with longer contracts or more complicated deals.
Key components and considerations when calculating NRR
To get net revenue retention right, focus on what you count and how you label revenue changes.
Choosing your base metric
Pick if you want to use MRR or ARR. MRR gives you quick, monthly signals. ARR smooths things out and is best for annual contracts.
If you run multi-year contracts, try contracted ARR (CARR) to reflect committed revenue. This helps when big contracts renew or expire.
Defining expansion revenue
Expansion includes:
- Upsells: customers moving to higher-priced plans
- Cross-sells: customers adding new products or modules
- Seat additions: customers adding more users or licenses
- Price increases: revenue from raising existing contract prices
Break these out. Organic adoption tells a different story than price hikes. Investors and your board will ask where expansion comes from.
Handling contraction and churn
Contraction is when customers spend less but stick around. It might mean downgrades, removing seats, or lighter usage.
Churn is when customers leave completely. Separate voluntary churn (they cancel) and involuntary churn (payment issues or expired cards). Each needs its own fix. Partial churn, customers dropping one product but keeping another, might show as contraction or churn, depending on your model. Be consistent.
Reactivations and win-backs
If a churned customer comes back, decide how you'll treat it. Some teams count them as new, others as negative churn. Pick one approach and stick to it. Otherwise, your NRR reporting gets messy.
Usage-based and hybrid pricing
If your pricing flexes with usage, revenue goes up and down with activity. Seasonality can cause dips that aren't true churn. For these models, measure NRR quarterly or yearly, not just monthly. Some teams build a "normalized NRR" to adjust for these swings.
NRR and essential SaaS metrics
Net revenue retention ties into all the major SaaS metrics. It shapes how you look at growth, efficiency, and company value.
Customer lifetime value and cac payback
NRR changes your customer lifetime value. Here's how the advanced LTV formula works:
LTV = (ARPA × gross margin %) / (churn rate - expansion rate)
When expansion outpaces churn (NRR above 100%), LTV jumps. This matters when you look at your CAC payback period. The target is usually at least three times higher LTV than CAC.
Good NRR shrinks your CAC payback period. If a customer upgrades in year two, you cover your acquisition cost faster.
Revenue growth efficiency
NRR tells you how much growth comes from existing customers, not just new ones. Companies with high NRR grow more efficiently. They aren't just replacing churned revenue each month.
This impacts metrics like the rule of 40. High NRR supports both growth and profitability.
Valuation multiples
Investors pay more for companies with strong net revenue retention. Here's one valuation framework that proves it:
valuation = ARR × growth rate × NRR × 10
If you drive nrr above 120%, you earn higher multiples. Predictable, recurring growth is a winner.
Product-market fit and customer success
Net revenue retention reveals if you've found product-market fit. When customers expand and stick, the product is solving real problems. If not, there's room to improve.
Customer success teams use NRR to measure their work. It's the single number that captures adoption, churn, and expansion.
Benchmarks and rules of thumb
Net revenue retention benchmarks shift by market, deal size, and business model. Use these numbers as reference, not rigid goals.
General NRR benchmarks
Top SaaS companies in 2025 post NRR between 115% and 125%. That's up from 106%-112% in 2022.
- Elite: over 120% NRR
- Strong: 110%-120% NRR
- Needs improvement: under 110% NRR
Benchmarks by company size
Retention changes as ARR grows:
- $1m - $10m arr: median NRR is 98%, GRR is 85%
- $10m - $50m arr: median NRR is 105%, GRR is 88%
- $50m - $100m arr: median NRR is 110%, GRR is 92%
- $100m+ arr: median NRR is 115%, GRR is 94%
Bigger companies usually see better retention, they serve enterprise customers with long contracts and higher switching costs.
Market segment differences
Companies focused on SMB often see NRR between 90% and 100%. That's due to higher churn and slim expansion. Enterprise-centered companies often reach 110% to 130% NRR because larger customers expand and stick around.
If your grr is over 90%, that's solid. If it dips below 85%, it's time to focus there.
Stage-based expectations
Early-stage companies can grow into better nrr while they find the right fit. Growth-stage teams need to show progress. Late-stage and public companies aim for NRR above 110%.
Match your NRR expectations to your stage and growth plan. A company early in its journey with 95% NRR and a path to 110% is on track. A mature company stuck at 95% would want to improve.
Common pitfalls to avoid
Even strong finance teams slip up when calculating or reading net revenue retention. Watch out for these common traps.
Metric confusion
Don't mix up net revenue retention, gross revenue retention, or logo retention. Each shows something unique. Use the right metric for your decisions, and be clear with your team about what you're reporting.
Churn classification errors
If you group voluntary and involuntary churn, you blur the real story. Voluntary churn usually means it's time to fix or improve your product. Involuntary churn calls for better billing.
Never treat downgrades as full churn. Downgrades mean the customer still sees value, they need another approach.
Hidden contraction
Contraction chips away at retention but can fly under the radar. When a customer removes users, they're still active, just spending less.
Track contraction as its own line. It often signals early warning of churn.
Price increase distortions
Lumping in price-driven expansion with adoption-driven expansion blurs your picture of customer health. Price increases will boost NRR for a while, but they don't always mean deeper adoption.
Break out price impacts in your reporting. Stakeholders will want to know the difference.
Cohort and time period issues
Cohort choices or period length can shift your NRR story. For example, NRR might look great monthly but fall short annually.
Pick your approach and document it. Method transparency makes your reporting strong.
Seasonal and one-time events
Seasonal swings or one-off contract events can skew NRR month to month. Rolling 12-month NRR gives you a more stable look.
Multi-year contract timing
Multi-year contracts need careful timing. Some systems front-load revenue, others spread it out.
Follow revenue recognition to normalize contract timing. Use recognized revenue, not bookings or cash, to calculate NRR.
Usage-based fluctuations
When usage drops, it can look like declining retention. But maybe customers are just using less that month.
Adjust for expected patterns or measure NRR over longer periods to get a true read.
Reactivation inconsistency
Changing your approach to reactivations from quarter to quarter scrambles your NRR trends. Set a clear policy. Many teams count reactivations inside 90 days as negative churn, and after 90 days as new business.
Acquired customer revenue
Mergers or buys can lift your NRR, but that growth isn't always organic. If you buy a company with $5m ARR, that boosts expansion but tells a different story than customer success.
Report NRR both with and without acquired revenue. Call out the differences for your team and stakeholders.
How to calculate net revenue retention in runway
Calculating NRR usually involves wrestling with spreadsheets and rigid formulas, but Runway lets you model it dynamically using your real-time data or projected figures. Here’s how you build it step-by-step.
1. Bring in subscription MRR data
Start by getting your raw data in order. Connect your revenue system, like Stripe or HubSpot, through the integrations directory. Use a template like the Stripe MRR quickstart to pull subscription data into a database. Make sure you configure this output as a database with one row per subscription and an MRR column formatted as a time series. You also need a customer identifier as a dimension to help you segment the data later.
2. Classify MRR movements
Next, you need to categorize how your revenue moves each month. In your revenue database, add four driver columns: New MRR, Upgrade MRR, Downgrade MRR, and Churn MRR. You use logical operators and if statements to compare current MRR against the previous month. Check out the functions & operators guide for syntax help.
Set your actuals and forecast formulas to capture movements like this:
New MRR:
if(MRR.last_month == 0 AND MRR > 0, MRR, 0)
Upgrade MRR:
if(MRR > MRR.last_month AND MRR.last_month != 0, MRR - MRR.last_month, 0)
Downgrade MRR:
if(MRR < MRR.last_month AND MRR != 0, MRR - MRR.last_month, 0)
Churn MRR:
if(MRR == 0 AND MRR.last_month != 0, MRR.last_month, 0)
Note that MRR.last_month uses standard driver formula inheritance to look back one period.
3. Define the NRR denominator
To get your NRR percentage right, you need the correct denominator. Add another driver column to your database for Prior Existing MRR. This captures the starting book of business for your NRR cohort (customers who had active revenue last month).
Use this formula:
if(MRR.last_month > 0, MRR.last_month, 0)
4. Aggregate components into model-level drivers
Now it’s time to roll up the data. Create high-level drivers in your model to sum these database columns. You use the sum function to aggregate the totals across all customers.
Create drivers like:
- Start_MRR:
sum(<Prior Existing MRR column pill>) - Expansion_MRR:
sum(<Upgrade MRR column pill>) - Contraction_MRR:
sum(<Downgrade MRR column pill>) - Churn_MRR_Total:
sum(<Churn MRR column pill>)
5. Create the NRR % driver
Build the final metric. Add a new Number driver called NRR %. Set the driver formula using the aggregates you just created:
(Start_MRR + Expansion_MRR + Contraction_MRR - Churn_MRR_Total) / Start_MRR
Don't forget to update the driver formatting to display the result as a percentage.
6. Tie to actuals and visualize
Set your Last Close date so Runway knows when to switch from imported actuals to your forecast formulas. This lets you track historical performance and project future retention in one view. To see how different plans or regions perform, filter your drivers by the dimensions you added earlier. Finally, drop your new NRR driver into a driver table or chart to visualize the trends over time.
Model net revenue retention with accuracy
Net revenue retention tells you where your business actually stands. When you track NRR the right way, you forecast better and stop putting out fires. It helps you make strong decisions and win over stakeholders.
Building a solid model means you have to connect revenue data, structure clear cohorts, and track expansion against churn. Runway handles the heavy lifting with flexible modeling and real-time data pulls. You get dimensional analysis that works immediately.
You can test different scenarios to see what they mean for growth and cash. It allows you to share these insights with your team without the usual spreadsheet drama.
Ready to build a smarter retention model? Book a demo and see how Runway can help.