Net revenue retention (or NRR) is a top-level metric which describes how good a business is at growing it's recurring revenue.
It essentially tracks how the business's recurring revenue changes over a given period, whether this is a month, a year, or some other timeframe.
How do you calculate net revenue retention?
Net revenue retention, for a given period, is calculated by dividing the recurring revenue at the end of that period by the recurring revenue at the beginning of the period.
If we're looking to calculate net revenue retention on a monthly basis for example, our calculation would be:
Where here we've essentially broken down our MRR at the end of the month into our MRR at the start of the month, plus additional MRR (from new customers and upgrades), minus churned MRR.
An example calculation
To let this sink in, let's run through a quick example.
Let's say that:
- You're running a SaaS business which last month hit $20k in MRR.
- This month you lost two customers worth $250 and $750 in MRR.
- You managed to bring in three new customers worth $1k in MRR each.
We can plug these values into our equation from earlier to work out what our net revenue retention is:
Our MRR at the end of the month is 10% higher than it was at the start of the month, giving us a 110% net revenue retention.
Modelling net revenue retention in Causal
Causal is an interactive modelling tool, which lets you build fully customisable financial models for your SaaS business.
The below is an example of what a net revenue retention model might look like in Causal. You can adjust the inputs at the top of the model to see how they affect the charts.
If you want to get under the hood, and see exactly how the model works, you can also click Use this template in the top right of the model.