What is NRR in SaaS?

NRR (Net Revenue Retention) is a key performance metric in SaaS that measures the percentage of recurring revenue retained from existing customers over a specific period, after accounting for upgrades, downgrades, and churn. In simpler terms, it shows how much revenue a company is keeping from its customer base, without relying on new customer acquisition.

NRR is calculated by taking the total recurring revenue at the start of a period, adding any expansion revenue (from upsells and cross-sells), and subtracting any revenue lost due to downgrades or churn. A high NRR (greater than 100%) indicates that a company is successfully retaining and growing revenue from its existing customer base, which is a positive sign of business health.

Importance of NRR

1. Customer Retention: A high NRR indicates strong customer loyalty and satisfaction, reducing the reliance on acquiring new customers to maintain growth.
2. Revenue Growth: NRR growth can signal that a company’s expansion efforts (such as upselling or cross-selling) are effective and that the business is scaling sustainably.
3. Predictability: NRR provides insight into future revenue projections, helping companies make informed decisions about resource allocation and growth strategies.

Challenges with NRR

1. Measuring Downgrades and Churn: Accurately tracking downgrades and churn can be complex, especially in companies with varied product offerings.
2. Balancing Growth: Focusing too heavily on NRR may lead companies to prioritize expansion at the expense of acquiring new customers.