What is net revenue retention (NRR)?
Net revenue retention is the metric that tells you how much recurring revenue from current customers you retained over a given period of time. Sometimes referred to as net dollar retention (NDR) , understanding this metric is key for SaaS leaders looking to assess how secure their business is.
Because NRR takes into account customer upgrades, downgrades, and churn to show (as a percentage) how much your business could continue to grow from your current customer base alone – that is, without acquiring any new ones.
How do you calculate net revenue retention?
The calculation for NRR is:
When you make this calculation for your business, you’re looking for over 100% – with industry benchmarks telling us that 109% is what you should be aiming for. Realistically though, the higher the better as it indicates your customers are happy and get value from the relationship – and that they can be a driving force for growth.
Anything less than 100% and you should be investigating why your customers are churning or contracting at the rate they are.
The new standard for SaaS
After a huge amount of SaaS growth in 2020, we’re now seeing a marked shift away from “growth at all costs” to a focus on sustainable growth as we enter another year of relative uncertainty. One where parts of the world will open back up. And when they do, subscription fatigue is likely to hit both businesses and consumers.
Sustainable growth in SaaS relies on retaining your existing customers, and where possible growing their accounts with you. For this, reporting your monthly recurring revenue (MRR) doesn’t quite cut it.
And so, we need a new way to measure success.
One that tells you what’s really going on with your existing customers. One that tells you what will happen to your business if (as we saw last March) SaaS businesses see record levels of churn. One that ultimately gives you a clear picture of the financial security of your business.
Don’t just take our word for it. Here’s the proof it works. Just look at the NRR for SaaS companies involved in the most successful IPOs in recent years:
At Paddle, we work with over 2000 software businesses to help them implement a revenue delivery strategy designed to drive NRR.