Most growth metrics mix together new customers and existing ones. Net revenue retention separates them. It asks: if we had won nobody new this year, would revenue be up or down?
What goes into NRR
Start with the recurring revenue from a fixed group of customers at the beginning of a period. Over the period, some of them upgrade (expansion), some downgrade (contraction) and some cancel (churn). NRR compares what that same group pays at the end with what it paid at the start.
Same customers, one year later
$100,000 + $12,000 − $3,000 − $5,000equals$104,000
Net revenue retention
$104,000 ÷ $100,000equals104%
Gross revenue retention
($100,000 − $3,000 − $5,000) ÷ $100,000equals92%
Revenue from customers who signed up during the year is deliberately left out. Including it would turn NRR into ordinary revenue growth.
NRR and GRR together
Gross revenue retention (GRR) ignores expansion, so it only shows how much revenue you kept. It can never go above 100%. Looking at both tells you where your growth or losses come from.
In the example, the company lost 8% of its starting revenue to downgrades and cancellations, but upgrades more than made up for it. If cancellations had been $15,000 instead of $5,000, NRR would fall to 94% and GRR to 82%.
Why investors watch it
A business with NRR above 100% grows every year even before sales and marketing do anything. That makes each new customer more valuable over time, and it makes growth cheaper, because part of it comes from customers you already paid to acquire.
How to raise it
- Pricing that grows with use, such as per seat or per usage, so customers pay more as they get more value.
- Add-ons or higher tiers that existing customers actually want.
- Reducing cancellations, which lifts both NRR and GRR.
Tip: Measure NRR over a full year where you can. Monthly figures move around a lot, especially with annual contracts renewing in some months and not others.