Net Revenue Retention (NRR) measures the changes in recurring revenue over a given period for existing customers.
Net Revenue Retention is a crucial SaaS business metric that shows how well a business is retaining its existing customers, while also increasing the revenue from those same customers. It is a combination of revenue lost from customers who downgraded or churned and new revenue earned from upsells, cross-sells, and expansions.
Net Revenue Retention(%) = [(Starting MRR + Expansion MRR - Downgraded MRR - Churned MRR) / Starting MRR] * 100
Let's consider that an eCommerce company starts the month with $1000 as MRR (Monthly Recurring Revenue). During this month, the company loses $100 because of downgrades, and $200 due to churns. But, it also gained $300 from upsells and expansions. Then, their Net Revenue Retention would be: [(1000+300-100-200)/1000] * 100 = 100%.
Net Revenue Retention is a significant metric as it provides keen insights into a business's growth and health. A high positive NRR means customers are deriving more value from your products and are willing to pay more over time. A negative NRR could be a sign of trouble and suggest the need to revise the business model or value proposition.
Numerous factors can impact Net Revenue Retention, including product quality, customer service quality, competitive market conditions, price adjustments, expansion opportunities, and customer success efforts.