Net Revenue Retention: The Growth Engine for SaaS Success

In the SaaS world, acquiring new customers gets all the glory. But here's what separates the winners from the also-rans: what happens after the sale. Net Revenue Retention (NRR) is one metric that separates high-performing SaaS companies from the rest, and it's quickly becoming the most important number on your dashboard.

Why? Because NRR showcases how much a company can grow without selling a single dollar of new business. In 2025, with customer acquisition costs climbing and investors demanding sustainable growth, your existing customer base isn't just an asset—it's your primary growth engine.

What Is Net Revenue Retention?

Net revenue retention is a SaaS metric that measures the recurring revenue generated from existing customers over a set period. Also referred to as net dollar retention (NDR), NRR considers upgrades, downgrades, and customer churn to indicate business growth potential from the current customer base.

Here's what makes NRR powerful: it tells you whether your customers find enough value in your product to not only stick around, but invest more over time. Net revenue retention does not include new customers—this is purely about what's happening with the customers you already have.

How to Calculate Net Revenue Retention

The NRR formula is straightforward once you understand the components:

NRR = (Starting MRR + Expansion MRR − Churned MRR) ÷ Starting MRR × 100

Let's break down what you need:

• Starting MRR: Your monthly recurring revenue at the beginning of the period
• Expansion MRR: Revenue from upsells, cross-sells, additional seats, or usage increases
• Churned MRR: Revenue lost from cancellations and downgrades

Here's a real example: You start January with $100,000 in MRR. During the month, existing customers add $20,000 in upgrades and expansions, but you lose $10,000 from churn and downgrades. Your NRR is ($100,000 + $20,000 - $10,000) ÷ $100,000 = 110%.

What's a Good Net Revenue Retention Rate?

The benchmarks vary by company size and market, but the median NRR is 106%, with top-performing companies exceeding 120%. The data tells a more nuanced story when you segment by company size:

• Larger companies ($100M+ ARR) lead with a median NRR of 115%
• Smaller companies ($1M–$10M ARR) hover at 98% NRR
• Enterprise software typically sees 120-150% NRR, while SMB-focused tools target 100-115%

Anything below 100% means you're losing revenue faster than you're expanding it—a warning sign that demands immediate attention. Above 100% is considered a good net revenue retention rate, because it indicates growth via a consistent customer base and low churn rate.

Why NRR Matters More Than Ever

The math is compelling. SaaS companies with high NRR grow 2.5x faster than their low-NRR counterparts. Even more impressive, companies with the highest NRR report median growth that is 83% higher than the population median.

Research from Wikipedia's SaaS overview shows that the subscription model only works when customers stick around and expand. For every 1% increase in revenue retention, a SaaS company's value increases by 12% after five years.

From an investor perspective, NRR has become the litmus test. When public companies achieve NRR over 120%, they get significantly higher valuations. Top performers like Snowflake (164%), GitLab (182%), and Doximity (153%) have used exceptional NRR to command premium valuations.

NRR and Its Relationship to ARR and MRR

Net revenue retention doesn't exist in isolation—it's intimately connected to your other core SaaS metrics. Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR) measure your total predictable revenue, but they can mask underlying problems.

High churn rates or account contraction can indicate issues with your product value proposition, pricing strategy, customer experience. But if your yardstick for success is MRR growth, these challenges can be masked by high acquisition rates.

Think of it this way: MRR and ARR tell you how much recurring revenue you have. NRR tells you if that revenue is sustainable and whether you can grow from your existing base. A company with $10M in ARR but 80% NRR is in a fundamentally different position than one with $10M ARR and 130% NRR.

Unit Economics and NRR

The connection between NRR and unit economics is where things get really interesting. High NRR and low CAC payback period shows 71% average growth rate and 47% Rule of 40—the sweet spot for SaaS efficiency.

When you improve NRR, you're fundamentally changing your unit economics. Acquiring new customers is often more expensive than retaining and expanding existing ones. It costs five times as much to acquire a new customer than to keep an existing one. Higher NRR means each customer delivers more lifetime value with lower incremental acquisition costs.

Expansion now contributes up to 40% of growth for companies with $15M-30M+ ARR, compared to 30% just a few years ago. This shift represents a fundamental change in how SaaS companies scale profitably.

NRR vs. Gross Revenue Retention

Don't confuse NRR with its cousin, Gross Revenue Retention (GRR). Gross revenue retention calculates total revenue (excluding expansion) minus revenue churn. In other words, GRR measures revenue solely from customer retention, while NRR measures revenue from customer retention and expansion.

Median GRR sits at 90%, with the top quartile surpassing 95%. GRR can never exceed 100% because it doesn't include expansion—it's purely a measure of how well you hold onto existing revenue.

Smart SaaS leaders track both. GRR shows your retention foundation, while NRR reveals your growth potential from that base.

Strategies to Improve Your NRR

Improving NRR requires a multi-pronged approach:

1. Reduce Churn: Identify at-risk customers early using health scores and engagement metrics. Better onboarding boosts first-year retention by 25%.

2. Drive Expansion: Build clear upgrade paths. There are many different ways to grow a customer's revenue including upselling more users to adopt the products, cross-selling different products, and instituting annual price increases on renewal.

3. Optimize Feature Adoption: High feature adoption (70%+ usage doubles retention likelihood). Customers who deeply adopt your product become expansion candidates.

4. Assign Ownership: Customer Success teams within SaaS organizations are typically accountable for NRR performance, but the entire company—from product to support—plays a role.

The Bottom Line

In 2025's efficiency-focused market, net revenue retention has evolved from a nice-to-have metric to the defining measure of SaaS health. It captures everything that matters: customer satisfaction, product-market fit, pricing strategy, and growth potential—all in one number.

Net revenue retention rates over 100% are excellent, as this indicates that your company can grow perpetually without ever acquiring a new customer. While you'll obviously continue acquiring new customers, building a machine that grows from within creates compounding advantages that transform good SaaS companies into great ones.

The question isn't whether you should track NRR—it's whether you can afford not to.