With the right key metrics in front of you, calculating the net revenue retention rate formula is a breeze. To get started you’ll need the following pieces of information:

• Annual recurring revenue or monthly recurring revenue from the beginning of the time period you wish to analyze.

• The dollar amount earned from account upgrades, upsells, or cross-sells.

• The dollar amount lost from account downgrades or downsells.

• The dollar amount lost from customer churn.

The bottom three bullet points from the list above should only include numbers from the time period you wish to analyze. If you have those numbers on hand, simply use the formula below. If you need assistance calculating ARR or MRR, skip down to the “Other Important Calculations” section.

Net Dollar Retention formula

Net revenue retention is equal to your ARR or MRR (again, depending on the time period you wish to analyze) plus any upsells, minus any downgrades, minus any churn, divided by your ARR or MRR. Written mathematically, that looks like this:

NRR = (Beginning ARR or MRR + Upsells - Downgrades - Churn) / (Beginning ARR or MRR)

In the next section of this article, we’ll explore an example to walk you through the process from beginning to end.

Other important calculations

To begin, an important note: With both MRR and ARR, you should be looking at annual or recurring revenue. One-time fees, projects, or month-to-month contracts aren’t generally considered in these metrics

Monthly Recurring Revenue

There are a few different ways to calculate MRR. The easiest formula is simply to take the total number of annual customers you have and multiply that by your average monthly revenue per customer. Written mathematically, that would look like this:

MRR = Number of Annual Customers X Average Monthly Revenue Per Customer

For companies with more complex subscription models, it’s important to understand how different price points impact your average monthly revenue per customer. You may wish to reflect that in your calculations.

Annual Recurring Revenue

Once you’ve calculated MRR, finding your ARR is easy! Simply multiply that number by 12. Written mathematically, that would look like this:

ARR = Number of Annual Customers X Average Monthly Revenue Per Customer X 12

Or

ARR = MRR X 12

Net Dollar Retention example

Let’s take a look at a quick example to walk you through the entire process. Our imaginary business, QRS Company, is a SaaS company that offers two subscription levels. They have the following key metrics.

Average monthly revenue per customer = $400 dollars Number of existing annual customers = 160 Amount of upsells for the month = $300 Amount of upsells for the year = $5,800 Amount of downgrades for the month = $200 Amount of downgrades for the year = $1800 Churn for the month = $250 Churn for the year = $1600

To get started, let’s calculate the MRR and ARR.

To calculate the MRR, we’ll multiply $400 X 160 for a total of $64,000.

To calculate the ARR then, we’ll take $64,000 and multiply it by 12 for a total of $768,000.

Now that we have these figures in place, we can calculate the NRR for both the month and the year. Let’s start with the NRR using the monthly recurring revenue.

($64,000 + $300 - $200 - $250) / $64,000 = .997, or about 99%. Now let’s take a look at what the numbers look like using annual recurring revenue and yearly figures.

($768,000 + $5,800 - $1800 - $1600) / $768,000 = 1.003, or 100%.

Although just a slight difference—one percent—it’s certainly not always this close. Other times, a month with a larger or smaller than average amount of upsells or downgrades could certainly make the disparity between these two calculations quite large. That’s why it’s always important to take any metric, including net revenue retention, in context.

Now, this might seem like a lot to do—from gathering the metrics to completing the calculations to figuring out how it all applies to your existing customers. Fortunately, you don’t have to do that on your own. With Planhat, every team in your business can access customer data, including health scores and NRR to improve customer experience and engagement across the board. In fact, THRIVE Learning integrated Planhat with their Hubspot CRM to better track NRR and saw a 24% increase in their license upsells in just one year!