Formula
NRR = ((Revenue End of Period - Downgrades + Upgrades) / Revenue Start of Period) * 100
Know your metric
Importance of
NRR
Customer Loyalty and Value Indicator
Net revenue retention highlights the effectiveness of customer retention strategies and the added value gained from existing customers through upsells and cross-sells.
Predictability in Revenue
High net revenue retention provides predictable recurring revenue, which is crucial for sustainable growth in subscription-based models like SaaS companies.
Benchmark for Performance
It serves as a benchmark for customer satisfaction and product/service relevance, indicating how well a company meets market and customer needs.
Drawbacks of
NRR
Complex to Calculate
Calculating net revenue retention can be complex, especially if there are numerous variables affecting revenue from existing customers, such as discounts, churn, and additional purchases.
May Mask Individual Problems
While overall retention may be high, this metric might mask issues such as the loss of key accounts or dissatisfaction in certain customer segments.
Influence from External Factors
External factors like economic downturns or increased competition can negatively impact net revenue retention, making it difficult to maintain.
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