Key takeaways:
- Gross revenue retention measures how well you maintain revenue from your current customers.
- Net revenue retention measures how well you retain customer revenue, and grow from your install base.
- NRR and GRR do not take revenue from new logo business into account.
To make it to the Super Bowl, a football team must have two things: a strong defense and a strategic offense. The defense maintains a good field position and prevents the opposing team from scoring points, while the offense orchestrates smart plays to gain additional yards and score points.
Similarly, to be successful, a B2B enterprise organization needs to prevent churn and increase revenue. That’s why it is important to understand and track both gross retention and net retention. Measuring and analyzing how your company manages these two factors is critical to growth, and in an era where more companies are being recognized for efficient growth, GRR and NRR are two critical business metrics for CS organizations and executive teams focused on customer-led growth. Distinguishing between these two metrics can provide insight into the health and success of your company, so let’s take a deeper look into what each metric is, how to calculate them, and how to apply them.
What is gross revenue retention (GRR)?
Gross retention, or gross revenue retention (GRR), measures how much of your monthly recurring revenue (MRR) you retain after you’ve subtracted the effects of churn or downgrades to lower pricing tiers. It does not account for upgrades or expansion. Depending on your business model and subscription terms, GRR can be calculated in monthly, quarterly, or annual terms. It ensures your business maintains a strong position with your current customer base.
How to calculate GRR
Gross Revenue Retention (GRR) measures how much revenue you retain from existing customers, excluding any expansion revenue.
Formula:
GRR = [ (MRR from renewals – MRR lost from churn – MRR lost from downgrades) / MRR at the beginning of the month] x 100
To apply this formula, take your MRR from customers who renewed at the end of the month, subtract any revenue lost because of customers who cancelled their agreements or are purchasing less from you, and divide the result by your MRR at the beginning of the month. Multiply that total by 100 to convert the result to a percentage.
Step-by-step calculation:
- Start with your Monthly Recurring Revenue (MRR) at the beginning of the month.
- Identify the MRR from renewals (customers who renewed).
- Subtract MRR lost from churn (customers who canceled).
- Subtract MRR lost from downgrades (customers who reduced their spending).
- Divide by the starting MRR, then multiply by 100 to get a percentage.
For example, let’s say your MRR at the start of the month was $100,000, your MRR from renewals at the end of the month was $95,000, you lost $2,500 from churn, and you lost another $2,500 from downgrades. Plugging these numbers into the formula would yield a GRR of 90% as shown below.
Example calculation:
- Starting MRR: $100,000
- MRR from renewals: $95,000
- MRR lost from churn: $2,500
- MRR lost from downgrades: $2,500
GRR = [($95,000 – $2,500 – $2,500) / $100,000] * 100 = 90%
GRR gives you a snapshot of how stable your revenue is when you only consider customers who renewed, decreased their monthly spend, or churned. However, it does not factor in any additional revenue from customers who increased their average spend.
Isolating your recurring revenue without considering these growth factors is useful because it tells you how well you maintain your revenue solely from your current customer base. GRR provides a long-term outlook on how much revenue you can expect to make without assuming your customers increase their spending. At the same time, it tells you how much revenue you’re losing because of customer churn or downgrades.
This visibility can reveal early warning signs if you’re facing a long-term risk of losing revenue, and be a leading indicator of problems such as product issues, increased competition, or loss of product/market fit. Measuring GRR empowers you to start taking preventive measures like implementing a customer success adoption plan to discourage downgrades or ensuring you’ve adequately communicated the value delivered to champions and key decision-makers.
What is net revenue retention (NRR)?
Going back to our football example, net retention, or net revenue retention (NRR), takes on the role of the offense, orchestrating smart plays to score points by retaining existing customers — while making strategic moves to gain additional revenue. It’s like a well-executed offensive strategy, where upsells, cross-sells, and expansions are the tactical plays that advance your business down the field, yard by yard, securing revenue victories beyond the initial customer acquisition.
How to calculate NRR
Net Revenue Retention (NRR) measures how much revenue you retain, including expansion from upgrades and cross-sells.
Formula:
NRR = [(MRR from renewals + MRR from upgrades – MRR lost from churn – MRR lost from downgrades) / MRR at the beginning of the month] x 100
Step-by-step calculation:
- Start with your Monthly Recurring Revenue (MRR) at the beginning of the month.
- Add MRR from renewals (customers who renewed).
- Add MRR from upgrades (customers who increased their spending).
- Subtract MRR lost from churn (customers who canceled).
- Subtract MRR lost from downgrades (customers who reduced their spending).
- Divide by the starting MRR, then multiply by 100 to get a percentage.
Example calculation:
- Starting MRR: $100,000
- MRR from renewals: $95,000
- MRR from upgrades: $10,000
- MRR lost from churn: $2,500
- MRR lost from downgrades: $2,500
NRR = [($95,000 + $10,000 – $2,500 – $2,500) / $100,000] x 100 = 100%
This example illustrates how you can maintain a 100% NRR even if you’re losing revenue from churn and downgrades as long as upgrades offset your revenue loss. Your NRR can exceed 100% if you have high renewals combined with strong upgrades, low churn, and low downgrade. Ideally, this is what you should aim for to grow your revenue. Net retention can be impacted by several variables, such as your go-to-market motion, customer segment, or company stage.
Why GRR and NRR matter for growth
As GTM Partners shows, you could double revenue every five years — without adding any new customers — if you had a $35M business with 120% NRR. And that’s why GTM Partners says, “NRR is the single most important metric of efficient growth.”
Though the metric has been on the decline for public companies since 2022, 110% NRR is the median for public cloud companies, according to OnlyCFO. As an example of customer-led growth, Github exceeded 130% NRR by driving tight alignment across its sales and customer success organizations.
NRR helps you focus on how quickly your revenue grows from upgrades, which can give you insight into how well your cross-sell and upsell strategies work. If your analysis indicates that you’re underperforming in these areas, it’s time to implement new offensive strategies, such as developing a customer expansion strategy to promote increased adoption and upgrades.
Optimizing customer retention to increase revenue
Just as a successful football team needs both a robust defense and a dynamic offense to secure victory, a thriving business needs to measure, analyze, and act on insights from both GRR and NRR metrics to prevent churn and increase revenue growth. When applied together, these metrics provide a complete picture of how well your retention and growth strategies work and where you need to make adjustments.
Recurring revenue is a rhythm — not one note. It’s a commitment to continuous improvement and innovation, led by the customers you’ve got. So, they meet their goals, and you meet yours.
Learn how Totango can help your business put revenue on repeat.
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