Description
Net Revenue Retention (NRR) Rate is the part of recurring revenue that a company manages to retain from existing customers during a period. This commonly includes expansion revenue, downgrades, and cancellations. This metric allows companies to get a complete view of customer retention changes. 90-125% is considered a good NDR depending on the target customer size.
Example
Net Revenue Retention Rate (NRR) = (Starting MRR + Expansion MRR – Contraction MRR – Churn MRR)/ Starting MRR x 100. Suppose a company has 100 customers who pay $20,000 annually. During a month, 10 customers are expected to renew but only 9 renew, 1 upgrade of $4000, and 2 downgrades of $2500 each. Thus, Net Dollar Retention = ($20,000 x 9) + $4,000 - ($2,500 x 2) / ($2,000 x 10) = $19,000 / $20,000 = 95%.
Why it matters
For any business, the more the number of retained customers, the healthier and more profitable the business will be. A high Net Retention Rate (NRR) indicates that the business is able to offer an attractive value proposition to customers.It tells how well a company can renew and add revenues from customers and thereby drive profitability.