Net revenue retention
Sector Deep DivesWhat last year's customer cohort spends this year, after churn and after upgrades, expressed as a percentage.
Also written: NRR, net dollar retention
Net revenue retention takes a cohort of customers and measures their spend a year later, including expansion from upgrades and additional seats, and net of churn and downgrades. New customers are excluded entirely.
Above 100% is the signal that matters. At 115%, the existing base grew 15% with no new customers won at all, which means the company grows even if sales stops entirely. That is the strongest structural characteristic a software business can have.
Below 100% the company is running up a down escalator: every new customer is partly replacing one that left, and growth requires ever increasing sales spend to stand still.
It is arguably the single most informative number in software, because it captures product value, pricing power and customer satisfaction in one figure that is hard to flatter.
Worked example
A cohort spent 1,000 last year. This year 80 churned away and 195 was added through upgrades and extra seats.
Net revenue retention is 1,115 over 1,000, or 111.5%. The base grew 11.5% before a single new customer was won.
Gross retention, which ignores expansion, is 92%. Reporting only the net figure hides a churn problem that expansion is currently masking, so ask for both.