What is the Net Revenue Retention Rate (NRR)?

The growth of recurring income from current customers over a given period (often a year) is measured by Net income Retention (NRR), also referred to as Net Dollar Retention, Profit Retention Rate, or just “Net Retention.” This metric tracks a company’s revenue growth from its core customer base, considering upgrades, additional purchases, and customer churn (loss and downgrades). 

Business-to-business (B2B) software-as-a-service (SaaS) companies utilize NRR as a key metric to track their capacity to hold onto current clients, spur growth, and increase long-term profitability. 

Maintaining a Net Revenue Retention rate above 100% is crucial to prevent recurring revenue loss and ensure the company’s growth potential.

For subscription-based organizations, the Net Revenue Retention Rate (NRR) is a crucial indicator of their capacity to keep and grow revenue from current clients over a given time frame. This is how to figure it out:

NRR = (Starting MRR + Expansion MRR – Churned MRR) / Starting MRR

• Starting MRR (Monthly Recurring Revenue): The recurring revenue from your existing customers at the beginning of the period. 
• Expansion MRR: Any additional revenue generated from existing customers through upsells, cross-sells, or add-ons during the period.
• Churned Monthly Recurring Revenue (MRR): the revenue no longer received from customers who terminated or downgraded their subscriptions within the timeframe.

NRR can be expressed as a percentage by multiplying the outcome by 100.

Customer churn and revenue churn are primary factors affecting NRR.  

A company’s effectiveness in growing recurring revenue from its current clientele is gauged by its net revenue ratio (NRR). It focuses on how well businesses increase revenue from current clients while lowering revenue from churn. 

A high NRR shows steady growth and reliable value delivery since it shows that a business can retain clients and bring in more money from them over time. To obtain a comprehensive view of a company’s health, NRR should be taken into account in conjunction with other measures. 

NRR tends to be higher when customers have positive experiences and are satisfied. While positive customer experiences can contribute to increased spending, other factors may also play a role. 

To improve the customer experience, meeting and exceeding customer expectations is a critical aspect. Accomplishing this objective necessitates offering tailored experiences, first-rate customer service, and superior products and services. 

Many subscription-based firms strive for a high net revenue retention (NRR). Here is why:

• Predictable Revenue: A higher net present ratio (NRR) indicates a more steady and predictable revenue stream, which facilitates forecasting and financial planning.
• Customer Acquisition Costs (CAC): The costs associated with acquiring clients might be affected by customer retention and increased sales to existing customers.
• Customer Influence on CLTV: Factors such as customer satisfaction and spending behavior may affect their lifetime value, which in turn could impact overall business profitability.
• Stronger Growth: Compounding growth is fueled by high NRR. This is due to the fact that your revenue base grows naturally, which promotes quicker and more steady growth.
• Better Valuation: Investors adore high NRR. It indicates a strong company with a marketable product and room to grow, which frequently results in higher valuations.
• Competitive advantage: Generally speaking, a high NRR indicates that you’re doing something that your rivals aren’t.