How to calculate NRR
Take the customers you had at the start of the period, usually twelve months ago, and their MRR at that moment. Then measure what the same customers pay today: add expansion from upgrades, extra seats and add-ons, and subtract contraction from downgrades and the MRR of customers who left. Divide by the starting MRR.
Customers who joined during the period stay out entirely. That is the point of the metric: it isolates what happens to revenue you already had.
Gross revenue retention (GRR) is the stricter version. It uses the same starting group but ignores expansion, so it can never go above 100%. It shows how much you keep before upgrades cover the losses.
NRR = (starting MRR + expansion − contraction − churned MRR) ÷ starting MRR
GRR = (starting MRR − contraction − churned MRR) ÷ starting MRR
Worked example
Twelve months ago a business had $10,000 of MRR from its customers at the time. Since then those same customers added $1,500 through upgrades and extra seats, downgrades cost $400, and customers who canceled took $700. New customers signed during the year are left out.
- Starting MRR
- $10,000
- Expansion
- +$1,500
- Contraction
- −$400
- Churned MRR
- −$700
- MRR from the same customers today
- $10,400
- NRR: $10,400 ÷ $10,000
- 104%
- GRR: $8,900 ÷ $10,000
- 89%
Existing customers grew by 4% overall, even though they lost 11% of their starting revenue to downgrades and cancellations.
Why NRR matters
NRR above 100% means your existing customers grow faster than they leave: even with no new sales, recurring revenue would rise. That is why it is watched closely in businesses that sell seats or usage, where customers grow into bigger bills.
Below 100%, new customers first have to replace what the existing base loses before any growth shows. NRR tells you how much of your growth depends on constant new sales.
Common mistakes
- Letting new customers in Revenue from customers who joined during the period is new revenue, not retained revenue.
- Reading NRR without GRR A strong NRR can hide heavy churn when a few customers expand a lot. Read the two together.
- Changing the window Monthly NRR and annual NRR are different numbers. Most people mean the trailing twelve months; say which you use.