Net Revenue Retention (NRR)
The percentage of revenue retained from existing customers over a period, including expansions and contractions.
Net Revenue Retention (NRR) measures how much revenue a company retains and expands from its existing customer base over a period, typically calculated annually. The formula is: (Starting MRR + Expansion - Contraction - Churn) / Starting MRR x 100. An NRR above 100% means the company is growing revenue from existing customers even without adding new ones.
NRR is one of the most important metrics for SaaS businesses because it measures product stickiness and expansion potential. Companies with NRR above 120% (like Snowflake, Twilio, or Datadog at their peak) are exceptionally rare and command premium valuations. NRR between 100-120% is strong, 90-100% is acceptable, and below 90% signals a retention problem that growth cannot outrun.
The power of high NRR becomes clear with compounding. If a cohort of customers generates $100K in Year 1 with 120% NRR, that same cohort generates $120K in Year 2, $144K in Year 3, and so on, without the company spending anything on acquisition. This "expand from the base" dynamic is why investors obsess over NRR: it reveals whether the company is building durable, growing revenue streams.
Example
A company starts Q1 with $1M in MRR from 200 existing customers. Over the quarter: $80K in expansion from upgrades, $20K in contraction from downgrades, and $30K lost from 12 cancelled customers. Ending MRR from the cohort is $1.03M. Annualized NRR is approximately 112%, meaning the existing base is growing 12% per year without any new customers.
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