NRR is a SaaS metric used to measure the percentage of a company's recurring revenue that is retained from existing customers over a period of time.
Understanding Net Revenue Retention Rate (NRR) and Gross Revenue Retention (GRR), also known as Net Dollar Retention (NDR) and Gross Dollar Retention (GDR), is essential for subscription revenue companies and their investors. It provides valuable insight into a company's financial health and can inform decisions about how to approach future investments and product changes.
Gross revenue retention is a SaaS metric used to measure the percentage of a company's recurring revenue that is retained from existing customers over a defined period of time. NRR takes into account downgrades, and churned customers. Essentially, GRR measures a company's ability to retain its current customer base.
The GRR formula is: (MRR at the beginning of the period - downgraded MRR - churned MRR) / MRR at the beginning of the period. It is just as accurate to use ARR instead of MRR for the GRR formula. The result of this formula is expressed as a percentage.
Net revenue retention is a SaaS metric used to measure the percentage of a company's recurring revenue that is retained from existing customers over a defined period of time. NRR takes into account upgrades, downgrades, and churned customers.
The NRR formula is: (MRR at start of period + upgrades MRR – churned MRR – downgraded MRR) / MRR at the beginning of the period) * 100%. The result of this formula is expressed as a percentage.
GRR and NRR provides a snapshot of a company’s efficiency to retain its revenue and can provide insight into whether or not a company’s product is truly valued by its customers.
A high NRR or GRR implies reliable and scalable growth due to customers being content. On the other hand, a low NRR puts a company at risk of stagnation due to churned and downgraded MRR or ARR exceeding their retained/upgraded MRR or ARR.
An NRR of ~100% is average and signifies that your product is satisfying the needs of your customers, but that your current customer base isn’t growing organically on its own. A company with an NRR of less than 100% needs to add new customers if it hopes to grow overall revenue. Best-in-class NRR results exceed 110%-120% depending on the avg customer size (enterprise software companies typically have higher NRR scores than consumer software companies). Some notable companies such as Snowflake and Twilio, who have usage-based or metric-based revenue models, have recently boasted of NRR results that exceed 150%.
GRR is a slightly less popular metric, but average scores for venture-backed companies hover around 90%.
