Net revenue retention (NRR) is the share of recurring revenue you keep from existing customers over a set period, after counting upgrades, downgrades and cancellations. To work it out, take starting revenue, add expansion, subtract contraction and churn, then divide by starting revenue. A result above 100% means your current customers are paying you more than they did before.
This guide shows the formula step by step, with a worked example. It also explains how NRR differs from gross retention and what a buyer can learn from a vendor's number.
The net revenue retention formula
NRR looks only at customers you already had at the start of the period. New customers are left out. The formula has four parts:
- Starting revenue. Recurring revenue from existing customers on day one, usually monthly (MRR) or annual (ARR).
- Expansion. Extra revenue from those same customers, from upgrades, added seats, add-ons or higher usage.
- Contraction. Revenue lost when customers downgrade but stay.
- Churn. Revenue lost when customers cancel.
Put together: NRR = (starting revenue + expansion - contraction - churn) / starting revenue, times 100. Use one time window for every input, such as a full year.
Sources: Andreessen Horowitz, "16 Startup Metrics"; Bessemer Venture Partners, "Scaling to $100 Million"
A worked example
Say a software vendor has $1,000,000 in annual recurring revenue from its existing customers on January 1. Over the next 12 months, these things happen to that same group:
| Step | Amount |
|---|---|
| Starting revenue | $1,000,000 |
| Add expansion | + $200,000 |
| Subtract contraction | - $50,000 |
| Subtract churn | - $80,000 |
| Revenue from the same customers a year later | $1,070,000 |
Divide $1,070,000 by $1,000,000. NRR is 107%. Revenue from the group grew 7% with no new customers at all.
Do not add revenue from customers who signed during the year. If you do, the number measures sales success, not how well you keep and grow your base.
Sources: Bessemer Venture Partners, "Scaling to $100 Million". The vendor and all figures in this example are hypothetical.
Net retention vs gross retention
Gross revenue retention (GRR) uses the same inputs but leaves out expansion. In the example above, GRR is ($1,000,000 - $50,000 - $80,000) / $1,000,000, or 87%. GRR can never go above 100%. NRR can.
The two numbers answer different questions:
- GRR asks how much of the base stays. It shows the damage from downgrades and cancellations.
- NRR asks how much the base is worth now. Strong upsells can hide a leaky base.
Investors have long warned about blending the two. A 2015 Andreessen Horowitz guide notes that net churn "understates the losses" because it mixes upsells in with cancellations. Read NRR and GRR side by side.
Sources: Andreessen Horowitz, "16 Startup Metrics"; Bessemer Venture Partners, "Scaling to $100 Million"
What a good number looks like
Benchmarks vary by company size and customer type. Bessemer Venture Partners studied its cloud company data and reported these ranges:
| Measure | Bessemer finding |
|---|---|
| Average gross retention | About 85% |
| Average net retention, all lifetimes | About 120% |
| Net retention, $1 million to $10 million ARR | Averages 140% |
| Net retention, $10 million to $100 million or more ARR | Averages 120% |
Bessemer also found that net retention runs lower for small-business customers than for large ones. When Mindbody went public, its net retention was 109% on contracts of about $2,000 a year. Okta had 123% on contracts above $50,000.
The lesson is to compare a vendor with others that sell to similar customers.
Sources: Bessemer Venture Partners, "Scaling to $100 Million"
How public companies report it
Public software companies often disclose a retention figure in filings with the US Securities and Exchange Commission (SEC). They do not all use the same method.
Snowflake is one example. In its February 26, 2025 results, filed with the SEC, it reported a net revenue retention rate of 126% for the quarter ended January 31, 2025. Its method looks at a cohort of customers over two years. It divides their product revenue in the second year by their product revenue in the first year. A customer that stops using the platform counts as zero in the second year.
That differs from the simple yearly formula above. Always read the definition in the footnotes before comparing one company's number with another's.
Sources: Snowflake Inc., Form 8-K, Exhibit 99.1, filed February 26, 2025, "Key Business Metrics"
What buyers can learn from it
If you are choosing a software or service vendor, its NRR can hint at how customers feel after they sign. It is a clue, not proof. Here is how to use it:
- Ask for GRR too. A vendor with 115% NRR but 70% GRR loses many customers and covers the gap with big upsells to the rest.
- Ask how it is defined. Which period, which customers, and whether usage fees are included.
- Match the segment. A figure from large enterprise accounts may not describe small-business customers.
- Look for a pattern. One strong quarter says less than several years of steady results.
- Check with references. Ask current customers why they renewed or why they expanded.
A high number suggests customers stay and spend more. A low one is a prompt for questions, such as whether the product fits your needs and how the vendor handles support and renewals.
Sources: Bessemer Venture Partners, "Scaling to $100 Million"; Andreessen Horowitz, "16 Startup Metrics"