What is Net Retention Rate (NRR) for Startups?
Net Retention Rate (NRR) is a key metric for startups, especially in the SaaS industry, that measures the percentage of recurring revenue retained from existing customers over a specific period, including upgrades, downgrades, and churn. It is a strong indicator of customer satisfaction, product stickiness, and growth potential without relying on new customer acquisition.
Formula for NRR:
Where:
- Starting MRR: The Monthly Recurring Revenue from existing customers at the beginning of the period.
- Expansions: Additional revenue generated from existing customers (upgrades, cross-sells, upsells).
- Contractions: Revenue lost due to downgrades (customers moving to lower-tier plans).
- Churn: Revenue lost from customers who stopped using the service.
Example:
- Starting MRR: $100,000
- Expansions (upgrades): $15,000
- Contractions (downgrades): $5,000
- Churn (lost customers): $10,000
An NRR of 100% means you retained all revenue from your existing customers, while anything above 100% indicates net growth from your current customer base even before acquiring new customers. High-growth SaaS companies often target NRR of 110% or more as a sign of strong product-market fit and expansion.
