How to Calculate Net Revenue Retention (NRR)

Net Revenue Retention (NRR), also called Net Dollar Retention (NDR), measures how much revenue you retain and grow from existing customers over a period. It's one of the most important metrics for subscription businesses because it indicates the inherent growth or shrinkage of your customer base's value.

An NRR above 100% means existing customers are worth more over time (through expansion). Below 100% means you're losing ground and need new customers just to stay flat.

NRR Formula

NRR = (Starting Revenue + Expansion - Contraction - Churn) / Starting Revenue × 100%

Where all values are for the same cohort of customers over a defined period.

Step-by-Step Calculation

Step 1: Define the Cohort

Identify customers who were active at the start of the period.

Important: Only include customers who existed at period start. New customers acquired during the period are excluded.

Step 2: Calculate Starting Revenue

Sum the MRR (or ARR) of the cohort at period start.

Step 3: Calculate Expansion Revenue

Revenue increases from cohort customers:

• Upgrades to higher plans
• Additional seats or users
• New products purchased
• Price increases

Step 4: Calculate Contraction Revenue

Revenue decreases from cohort customers who didn't fully churn:

• Downgrades to lower plans
• Reduced seats or users
• Discount applications

Step 5: Calculate Churned Revenue

Revenue from cohort customers who cancelled entirely.

Step 6: Apply the Formula

NRR = (Start + Expansion - Contraction - Churn) / Start × 100%

Example Calculation

January cohort: 100 customers with $100,000 MRR

By December:

• Expansion: $15,000 (upgrades, add-ons)
• Contraction: $5,000 (downgrades)
• Churn: $8,000 (cancellations)

NRR = ($100,000 + $15,000 - $5,000 - $8,000) / $100,000 × 100%
NRR = $102,000 / $100,000 × 100%
NRR = 102%

This 102% NRR means the January cohort is worth 2% more a year later - the business grows even without new customers.

Interpreting NRR

NRR	Interpretation
130%+	Exceptional expansion; customers grow significantly
110-130%	Strong; healthy expansion outpaces losses
100-110%	Good; slight net growth from existing base
90-100%	Concerning; need new sales to grow
<90%	Critical; customer base is shrinking significantly

NRR vs. Gross Retention

Gross Retention Rate (GRR) = (Start - Contraction - Churn) / Start × 100%

GRR ignores expansion - it measures pure retention. NRR measures the net effect of everything.

Scenario	GRR	NRR
Perfect retention, no expansion	100%	100%
10% churn, 20% expansion	90%	110%
20% churn, 15% expansion	80%	95%

High expansion can mask retention problems if you only look at NRR. Track both.

Common Mistakes

Wrong Cohort Definition

Including new customers in the calculation inflates NRR. The cohort must be fixed at period start.

Mixing Time Periods

Ensure all components (start, expansion, contraction, churn) use the same time period and consistent definitions.

Ignoring Contraction

Some calculations only consider churn, not contraction. This overstates NRR when downgrades are significant.

Inconsistent Revenue Metric

Use the same revenue metric (MRR or ARR) for all components. Mixing them produces meaningless results.

NRR in Context-Aware Analytics

metric:
  name: NRR
  description: Net Revenue Retention - trailing 12 month
  calculation: |
    (cohort_start_mrr + expansion_mrr - contraction_mrr - churned_mrr)
    / cohort_start_mrr * 100
  cohort_definition: Customers active at period start
  time_period: Trailing 12 months
  dimensions: [customer_segment, product]
  owner: finance_team

With explicit cohort and time period definitions, NRR calculations are consistent and trustworthy.