SaaS Net Revenue Retention Rate (NRR) Calculator

Think of Net Revenue Retention (NRR) as a way to measure how well a SaaS business keeps the reveue earned from existing clients; the higher the percentage, the less revenue you’re losing and the better your business is retaining and growing its customer base.

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    Strategic Investment Insights

    NRR shows where to invest for growth, like in product or sales efforts.

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    Operational Impact Highlight

    High NRR means more focus on keeping current clients happy.

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    Growth Opportunities Analysis

    Boosting NRR creates predictable growth through upsells and less churn.

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SaaS Net Revenue Retention Rate (NRR)

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Net Revenue Retention (NRR) measures the percentage of recurring revenue retained from existing customers over time, including expansions and contractions. An NRR above 100% indicates revenue growth from existing customers.

How to Calculate SaaS Net Revenue Retention Rate (NRR)

To calculate your SaaS net revenue retention rate, please follow these steps: 

  1. Determine your Starting MRR. This is your total Monthly Recurring Revenue at the beginning of the period. For example, a small startup might have a Starting MRR of $10,000, while a larger company could start with $500,000. Find this data in your financial records for the beginning of the period.
  2. Calculate your Expansion MRR. This is the additional revenue generated from existing customers through upgrades or add-ons during the period. For instance, a company might have an Expansion MRR of $1,500 if some customers upgraded to premium plans. Check your sales records to track expansions.
  3. Determine your Churned MRR. This is the revenue lost from customers who canceled their subscriptions during the period. Suppose a business loses $500 in recurring revenue from cancellations; this is their Churned MRR. Review your cancellation records for this number.
  4. Add your Expansion MRR to your Starting MRR. Using our example, this would be $10,000 (Starting MRR) + $1,500 (Expansion MRR) = $11,500. This gives you the total revenue before accounting for churn.
  5. Subtract your Churned MRR from the result of step 4. In our case, this is $11,500 – $500 (Churned MRR) = $11,000. This is your net revenue after accounting for expansions and losses.
  6. Divide this result by your Starting MRR. Continuing with our example, $11,000 / $10,000 = 1.1. This will give you the NRR as a decimal.
  7. Multiply by 100 to get your SaaS Net Revenue Retention Rate (NRR) as a percentage. In our example, 1.1 * 100 = 110%. Therefore, your NRR is 110%. For a larger company with a Starting MRR of $500,000, an Expansion MRR of $60,000 and a Churned MRR of $20,000, the NRR would be 108% (($500,000 + $60,000 – $20,000) / $500,000 * 100)

Note: Ensure you are calculating MRR consistently across all variables. If your expansion and churn are collected based on the current billing cycle, make sure your initial MRR reflects the first billing cycle you use.

SaaS Net Revenue Retention (NRR) = (Starting MRR + Expansion MRR – Churned MRR) / Starting MRR

Understanding SaaS Net Revenue Retention Rate (NRR)

Ioana Grigorescu

Dezembro 17, 2024

What is Net Revenue Retention Rate?

o Net Revenue Retention (NRR) rate provides a clear picture of a company’s ability to generate revenue from its current customer base within a specific timeframe, considering sources like upgrades, downgrades, and churn.

If the NRR is 100 percent, it means the company retains all its existing revenue. An NRR above 100 percent indicates that customers are spending more than they did previously, contributing to business growth.

  • Quantifies expansion revenue, showcasing the ability to grow within your existing customer base.

  • Informs strategic investment by highlighting the effectiveness of upselling and cross-selling efforts.

  • Monitors ongoing performance, enabling proactive adjustments to your customer lifecycle.

Practical Examples of SaaS Net Revenue Retention Rate (NRR)

  • Example 1: A SaaS company started the year with a recurring revenue of $100,000. Throughout the year, it lost $10,000 due to churn but gained an additional $20,000 through upsells. The NRR for the year is calculated as (($100,000 – $10,000 + $20,000) / $100,000) * 100 = 110%. This shows a positive revenue retention, indicating growth in customer spend.
  • Example 2: A SaaS company had beginning with $200,000 in revenue, facing $25,000 in churn and securing $30,000 in expansions. The NRR calculation would be (($200,000 – $25,000 + $30,000) / $200,000) * 100 = 102.5%. This percentage demonstrates the company’s ability to not only retain but also grow its revenues despite churn.
  • Example 3: Consider a firm with an initial revenue of $150,000, which then experiences $20,000 in churn and manages to achieve $50,000 in upgrades. The NRR is (($150,000 – $20,000 + $50,000) / $150,000) * 100 = 120%. This indicates a strong performance in maintaining and increasing revenue from its existing customer base.

Here’s a sample data table showing how NRR is calculated over three periods, with period-over-period changes and trend analysis:

Period Starting MRR MRR from Upgrades MRR from Downgrades MRR Churn Ending MRR NRR Period Change Period Change %
Month 1 $50,000 $5,000 $1,000 $2,000 $52,000 104% N/A N/A
Month 2 $52,000 $6,000 $1,500 $1,000 $55,500 106.73% $3,500 6.73%
Month 3 $55,500 $7,000 $500 $3,000 $59,000 106.3% $3,500 6.3%

In this example, while the Net Revenue Retention Rate (NRR) fluctuates slightly, it consistently remains above 100%, indicating healthy growth. The positive period change and percentage change confirm this upward trend. Notice that even though churn increased in month 3, the overall NRR remained strong due to strong upgrades and relatively low downgrades.

NRR = ($50,000 + $10,000 – $2,000 – $1,000) / $50,000 = 1.14

Different Ways to Calculate SaaS Net Revenue Retention Rate

  • NRR Including Expansion Revenue: Calculates NRR by adding revenue from customers who have upgraded services (upsells and cross-sells). This method highlights revenue growth from existing customers and potential expansion.
  • NRR with Churn: This formula variation includes revenue lost due to churned customers, providing insight into the reasons behind revenue changes and the impact of customer attrition.
  • NRR Excluding Downgrades: Excludes revenue decreases from customers who have downgraded their services, isolating the impact of upselling and expansion strategies.

How to Improve Your SaaS Net Revenue Retention Rate

  • Enhance Onboarding: Add a detailed section in your onboarding process to help new customers learn how to use your product efficiently. Include steps for accessing the app, navigating the interface, and discovering essential features.
  • Proactive Engagement: Send newsletters or host events in your app to encourage user interaction with different features. Offer rewards like discounts or exclusive content to engage with all app sections.
  • Value-Added Upselling: Showcase case studies demonstrating the significant impact from using your product. Highlight particular features or detailed results to persuade users to consider upgrades.
  • Customer Feedback Loop: Quickly act on customer feedback and publicly show how this feedback improves your product. This builds trust and assures customers their input is valued.
  • Exceptional Support: Invest in an effective support team to address issues promptly. This not only values customer time but also enhances their overall experience.
  • Build Customer Loyalty: Create a loyalty program or provide special perks for loyal customers, such as discounts, early product access, or other exclusive benefits.
  • Targeted Retention Strategies: Regularly evaluate retention metrics and develop specific strategies for at-risk accounts. Consider escalating significant issues, exploring alternative subscriptions, or consulting experts to optimize retention.

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