What is Net Retention Rate? How to Calculate + Formula

Nearly half of CEOs believe their company won’t be viable a decade from now, according to a recent PwC CEO survey. Perhaps that’s why more are taking long-term strategic views — a stance that resonates throughout their organizations. In fact, according to Salesforce’s State of Sales report, 80% of sales representatives say their leadership is prioritizing long-term customer relationships over short-term wins. By doing so, they’re more likely to inspire customer loyalty, repeat sales and future viability.

One of the best ways to measure the bottom-line effects of customer loyalty is Net Revenue Retention (NRR), also called net retention rate. NRR includes both customer retention and expansion, the secret sauce to thriving in a competitive and cost-conscious market. Companies that ace NRR are better positioned to face unexpected market challenges and sustain profitable growth.

Let’s dive into the reasons this metric is crucial for success and how leading companies use it for essential insights.

What you’ll learn:

What is net retention rate?

NRR measures the revenue a company captures by both retaining and growing its existing customers. It does this by accounting for three components:

• Expansion revenue: Revenue gained through upselling or cross-selling to existing customers.
• Contraction revenue: Revenue lost due to existing customers’ downgrades or reduced usage.
• Churn revenue: Revenue lost when customers leave or stop using a service.

A high NRR signals a healthy, stable business. It means customers are engaged, loyal, and likely increasing their overall spend with your company. It also indicates that customers find consistent value in what you provide and you’ve achieved that elusive stickiness factor that keeps them around.

(Back to top)

Why is net retention rate important?

NRR is a key indicator of a company’s growth, profitability, and how well it’s increasing its overall value. With rising customer acquisition costs and heightened competition, organizations need to focus on retaining and growing revenue from their existing customers.

Monitoring NRR can help improve the following sales operations and sales outcomes:

• Measuring growth without adding new customers: Acquiring new customers gets increasingly expensive as markets grow more competitive, so relying on existing ones is crucial. A high NRR (above 100%) means you’re growing revenue even without acquiring new customers.
• Indicating customer satisfaction: When customers stay, renew, or add to their purchases or subscriptions, it shows that your company is likely meeting or exceeding their expectations.
• Measuring churn: High churn rates often reflect dissatisfaction or misalignment between the product and customer needs. If customers leave shortly after signing up, it may indicate issues with onboarding, product usability, or unmet expectations. Measuring churn helps identify pain points and guide improvements to help eliminate “leaky bucket” situations.
• Signaling product-market fit: NRR reveals how well your products and services meet current and evolving customer needs. Growth within your customer base suggests a strong product-market fit. Customers who find value in your product tend to stick around, expand their usage, and even add on features or upgrade to higher tiers.
• Driving profitability: Based on often-cited research from Bain & Company, it’s become common wisdom that retaining and expanding existing customers is typically more cost-effective than acquiring new ones. This makes tracking and improving NRR a critical lever to drive profitability, especially in an increasingly competitive market.
• Measuring predictable and recurring revenue: Companies with a strong NRR can more accurately forecast future revenue, improving long-term stability and scalability.
• Highlighting upselling and cross-selling rates: NRR captures the effect of upselling and cross-selling, showing how well your company maximizes the revenue potential of its existing customer base.
• Assessing competitive advantage: A high NRR shows your ability to retain and grow your customer base due to a unique value proposition, great service, fantastic product-market fit, or any number of factors that keep your customers happy. Either way, you can use your stellar customer retention numbers to help differentiate your company from the competition.
• Attracting investors: High NRR rates demonstrate stability, scalability, and potential for growth. When public companies achieve NRR over 120%, they get significantly higher valuations.

(Back to top)

Thanks, you’re subscribed!

How to calculate NRR

To calculate NRR, use this formula:

NRR = [(Total revenue from existing customers) + (Total revenue expansions from this base) – (Total revenue loss [due to both contractions, such as downgrades, and customer churn])] x 100

NRR calculation example

Let’s say that at the start of the year, a subscription-based fitness app had $500,000 in revenue from existing subscribers. Throughout the year, they generate $100,000 in expansion revenue, lose $20,000 due to downgrades, and lose $30,000 from churn.

This is how they’d calculate NRR:

(500,000 + 100,000 – 20,000 – 30,000) / 500,000 = 1.1

NRR = 1.1 X 100 = 110%

(Back to top)

What is a good NRR?

A positive NRR must meet or exceed 100%. Anything below that means revenue from existing customers is shrinking, and your sales team will need to acquire new customers at a faster rate to cover the shrinkage.

High-growth companies often achieve NRRs of 120% or more, reflecting strong expansion dynamics. SaaS and other tech companies typically enjoy higher NRRs due to subscription models and scalable services. Here’s a guide on how to assess your NRR:

• >100%: Generally speaking, your company is on solid ground as long as your NRR meets or exceeds 100%. This means you’re achieving a healthy mix of retaining and expanding customer accounts. If you’re in an industry that typically faces higher customer churn rates, you can still exceed a 100% NRR by cross-selling and upselling to existing customers.
• 80% – 99.9%: Your company has some work to do. You may be losing customers at a high rate while also missing opportunities to expand customer accounts. When you see an NRR in this range, take a close look at both your customer lifetime value and your churn rate. Then prioritize your next steps. In the short term, look for attainable opportunities to make quick improvements. Then collaborate on long-term strategies to move both factors in the right direction.
• <80%: NRRs in this range signal trouble. Start by addressing low customer retention. Once customer loyalty improves, you can take steps to expand those accounts.

To find the NRR benchmarks relevant to your business, check industry financial reports and analyses from firms like PwC, Gartner, Forrester, and industry-specific publications.

(Back to top)

Difference between net retention rate and gross revenue retention

Gross revenue retention (GRR) focuses on a smaller portion of the revenue generated from your existing customer base. It includes just the revenue retained, which can shrink when customers either downgrade or leave. NRR, on the other hand, includes customer upgrades and extensions.

This means NRR provides a more comprehensive view of revenue generated from your existing customer base.

Focus on NRR when you want to drive growth through the expansion of existing customers. This metric can highlight which customers are increasing their use of your products and services.

Focus on GRR when your highest priority is preventing customer churn. It helps you identify opportunities to improve customer retention. Because GRR leaves out upgrades and expansions, you can focus on how churn impacts revenue without the noise of upsells. Then identify areas of focus for improving retention.

(Back to top)

Tips to improve your net retention rate

If your NRR is coming up short, consider these tactics for boosting your numbers.

1. Speed time to value.

Happy, successful customers are more likely to renew and expand their investments. One way to deliver a satisfying experience is to help them realize value more quickly. Make sure customers can derive instant value from a good experience, either by making their lives easier or simply more fun. For business customers, ensure they can see a clear path to ROI and improved business and productivity outcomes.

First, ensure your product or service delivery comes with accessible, 24/7 how-to support. Depending on the product or service, this can take many forms, from video library and an easy-to-use manual to online customer communities and live web support. By planning and providing readily available and useful resources, your customers receive proactive help even before reaching out to your support teams. Providing on-demand instructional videos via a sales enablement program, for instance removes friction in your onboarding process.

Implement a robust customer success strategy with proactive personalized support, regular check-ins, and personalized training to drive ongoing value delivery. Monitor customer engagement and usage data and touch based with customers that appear to be trending down in their use of your product or service.

Example: After a team supporting its collaborative messaging tool decided to focus on personalized onboarding and engagement, it created tailored solutions for adoption challenges and achieved an NRR of 143% prior to its acquisition. Their customer success strategies helped drive retention and upsells, especially in enterprise accounts.

2. Increase cross-selling and upselling.

Ideally, existing customers already trust your brand. This can make them ripe for account expansion.

Train your sales teams to identify expansion opportunities and build offers that align with customer needs. Doing so will help them identify opportunities to cross-sell and upsell by offering additional products and services. For instance, using tools within your CRM, they can identify customers who are most likely to buy and then use targeted campaigns to upsell premium plans.

Example: A cloud-based communications platform increased their NRR to over 150% through strategic product expansion. By introducing new features and services that complemented core offerings, the company created new upselling opportunities.

3. Personalize customer experiences.

Customers expect you to know them. Personalizing interactions increases engagement, satisfaction, and the likelihood of upsells and renewals.

Use data and analytics to tailor customer communications, campaigns, and offers. Use customer data to understand how your customers are using your products and services. These insights can help you determine whether certain customers could use customized support plans or whether they could benefit from switching to or using additional products or services.

Example: A cloud-based web service consistently maintained its NRR of 120% thanks to personalized product recommendations. It used customer usage data to automatically serve up tailored recommendations for additional products and services, and its account managers leveraged the same data to create customized growth plans for their customers.

4. Manage Churn

Proactively managing customer churn is key to maintaining and improving your Net Retention Rate. By identifying and addressing potential customer departures early, you can prevent revenue loss and maintain a healthy customer base.

Develop a churn management strategy that goes beyond reactive measures. Flag customers showing zero engagement or sending churn signals using advanced analytics and usage tracking. Deploy targeted save tactics, such as creating compelling reasons for customers to re-engage with a success representative. Use cohort analysis to understand common churn patterns and develop scalable intervention strategies. Embed proactive churn prevention into weekly meetings and quarterly business reviews (QBRs), triggering calls to action in real-time when red flags emerge.

Importantly, not all customers are worth saving. Develop a strategic approach to customer retention by comparing at-risk customers against your ideal customer profile. Some customers will consume significant resources despite intervention, while others represent high-value opportunities for retention and expansion. Invest your save tactics strategically, focusing on customers who align closely with your core value proposition and have demonstrated potential for long-term growth. 

Leverage AI and predictive analytics by using ML models to predict churn and expansion likelihood, score accounts for CS prioritization and personalize engagement based on behavior and intent signals.

Example: A SaaS company reduced churn by 40% through a targeted intervention program. They used predictive analytics to identify at-risk customers and offered personalized concessions, such as temporary price reductions, additional training, or downgrading to a lower offering to retain essential feature access. Another enterprise software provider implemented a “save team” that proactively reached out to customers showing decreased engagement, offering tailored solutions and successfully retaining 60% of customers who were previously considered high-risk for churn.

(Back to top)

NRR is a strategic advantage

NRR is more than just a number. It’s a strategic advantage. By measuring it, you gain access to insights on both your customer experience — how well your products are serving customers and how satisfied they are — and your ability to capitalize on existing customer relationships. In this way, NRR can be a key indicator of long-term company viability. When organizations better nurture and expand existing customer relationships, they achieve higher NRRs, protecting and even boosting their bottom line.