Net revenue retention (NRR) is quickly becoming one of the most important metrics in the Software-as-a-Service (SaaS) industry, and it’s not hard to understand why. Calculating net dollar retention (another way to say NRR in countries that use the dollar) gives a fuller picture on the overall health of a SaaS company that relies on ongoing memberships from existing customers. Let’s jump right in and answer the question “How is NRR calculated in business?”
How do you calculate Net Revenue Retention for SaaS companies?
The basic formula is:
NRR = (Beginning Recurring Revenue + Upsells - Downgrades - Churn) / (Beginning Recurring Revenue)
To break this down and make it easier to understand, let’s look at each of the four components you need to calculate this on their own.
Beginning Recurring Revenue
You can use monthly recurring revenue (MRR) or annual recurring revenue (ARR) depending on what period of time you would like to calculate NRR for.
Upsells
Additional money coming in from existing clients that have upgraded their subscriptions to a higher level or added additional products your company offers.
Downgrades
Decrease in money coming in from existing clients because they have downgraded their subscriptions to a lower tier or canceled some part of their services from you.
Churn
Customers who left entirely.
What is a Net Revenue Retention calculation example?
Using the formula above, let’s go through an example of how this might be applied to a real-world company. Here’s a hypothetical example so we can calculate monthly net revenue retention.
Break Room Munchies is a SaaS company that provides businesses with a way to conveniently compare prices between suppliers and bulk order refills for their company snacks in the break room.
Monthly recurring revenue from previous month = $40,000
Upsells during this month = $4,000
Downgrades during this month = $2,000
Churn = $500
With our formula NRR = (MRR + Upsells - Downgrades - Churn) / (MRR)
Break Room Munchies’ monthly NRR = ($40,000 + $4,000 - $2,000 - $500) / ($40,000) = 1.0375
Generally NRR is expressed as a percentage, so multiply 1.0375 by 100 and this means that Break Room Munchies has a NRR rate of 103.75%, showing that the business is growing even without adding new clients. Anything over 100% is called net negative churn and is a very good thing for any SaaS company to aspire to.
How is annual NRR calculated?
You can calculate annual NRR with the exact same formula we used to calculate monthly NRR. If we look at our hypothetical Break Room Munchies company again, let’s assume these are their annual numbers:
Annual recurring revenue from previous year = $480,000
Upsells during this year = $48,000
Downgrades during this month = $24,000
Churn = $6000
With our formula NRR = (ARR + Upsells - Downgrades - Churn) / (ARR)
Break Room Munchies’ annual NRR = ($480,000 + $48,000 - $24,000 - $6000) / ($480,000) = 1.0375
You can see that the annual NRR is identical to the MRR assuming each month of the year is the same for a company. This makes it easy to compare the annual NRR for your company from a previous year with the monthly NRR without needing to wait until the end of a full year. This NRR formula works for any time period you’d like to compare—simply use the recurring revenue from whatever time period desired.
What are some Net Revenue Retention benchmarks for a B2B SaaS company?
What is the difference between Gross and Net Revenue Retention?
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The better you understand your company with metrics like NRR, the better you can see how to serve your customers. At Planhat, we are redefining how you can grow and collaborate with your customers to create your ultimate customer-driven business. See more about what we offer or contact us for a demo today.
Founder
Scaale.io
Jonas is the founder of Scaale.io, a growth partner for B2B tech companies, and brings over a decade of experience across brand, media, and marketing strategy. Previously Director of Brand & Communications at Planhat, he helped shape the company’s global narrative and positioning from the early days. Before that, he ran Make Your Mark, a Stockholm-based agency delivering strategic content for brands like Klarna, Volvo, and Vattenfall. Earlier in his career, Jonas served as Editor in Chief at Aller Media, where he led the digital transformation of Sweden’s iconic lifestyle brand Café.
