What NRR measures
NRR (Net Revenue Retention) measures how revenue from an existing customer cohort changes over a period, including expansion, contraction, and churn. It answers a simple question: after customers start, do they grow, shrink, or leave-
NRR formula
NRR = (starting MRR + expansion - contraction - churn) / starting MRR
Components (quick reference)
| Component | What it is | Example |
|---|---|---|
| Starting MRR | Recurring revenue from the cohort at the start of the window. | Cohort starts the month at $100k MRR. |
| Expansion | Upgrades, more seats, add-ons, usage growth for existing customers. | +$15k expansion MRR |
| Contraction | Downgrades, seat reductions, usage decreases (not full churn). | -$5k contraction MRR |
| Churn | Lost recurring revenue from cancellations. | -$8k churned MRR |
How to calculate NRR (step-by-step)
- Pick a cohort and a time window (monthly or quarterly are common).
- Measure starting MRR for that cohort at the beginning of the window.
- Measure expansion, contraction, and churned MRR for the cohort over the window.
- Compute ending MRR = starting + expansion - contraction - churn.
- Compute NRR = ending MRR / starting MRR.
NRR vs GRR
- NRR includes expansion; GRR excludes expansion.
- NRR can look strong even when churn is high if expansion is large.
- Use GRR to understand durability; use NRR to understand cohort growth.
Common mistakes
- Including new customer revenue (NRR is existing cohort only).
- Using blended NRR without segmenting (SMB vs enterprise behaves differently).
- Mixing MRR movements with cash receipts or revenue recognition.
- Changing the definition of MRR or movements month-to-month.
How to improve NRR
- Reduce churn: onboarding, activation, product reliability, support, and renewal process.
- Reduce contraction: packaging, value realization, and proactive customer success.
- Increase expansion: upsells, add-ons, usage-based pricing, and product-led growth loops.
- Segment and focus: improve NRR in the segments you want to scale.