Net revenue retention
NRR asks what last year's customers are worth this year, expansion included and new customers excluded.
Also Net dollar retention · NDR · Net revenue retention rate
NRR measures what a fixed set of customers is worth now versus what it was worth then, expansion included and new customers excluded. The SoF default is the monthly-cohort compounded trailing twelve months, usage-inclusive and reactivation-inclusive. Two alternative variants are defined, and all three are reported.
- Formula
TTM compounded = product of twelve monthly ratios, each = Σ revenue this month of customers active last month ÷ Σ their revenue last month- Unit
- %
- Bounded
- no ceiling · 100% = base flat
- Defaults
- ttm_compounded · usage-inclusive (locked) · reactivation-inclusive · no smoothing
- Biggest lever
- Usage inclusion — 14 points in the sensitivity example
- Read with
- GRR · Cohort retention · Definitional sensitivity
- Appears in
- Board deck · S-1 and 10-K · Data room · Valuation
- Switches
- 4 · 1 locked — see the choices
What it measures
NRR is the closest thing software finance has to a single-number verdict on product-market fit: does the installed base grow on its own? Above 100% means existing customers spend more this year than last, net of everything lost — the business compounds without new sales. Below 100% means new sales are refilling a leaking bucket.
Because so much rides on it, NRR is also the most definitionally fragile number in the standard. The same customer base can produce materially different NRRs — all of them honestly computed — depending on four choices. This standard names all four and computes the alternatives rather than picking one and hoping.
How it is computed
Variant (a) — TTM compounded (SoF default). For each of the trailing twelve months, compute a month-over-month cohort ratio: take the customers active in month m−1, sum their basis revenue in m−1 (denominator), sum the same customers’ revenue in m (numerator). Multiply the twelve monthly ratios together.
Months with no retained base are skipped rather than treated as zero — a zero-base month would annihilate the product.
Compounding is the most faithful of the three because a customer that joins mid-year enters the calculation as soon as it has a prior month, and the measure never depends on a single arbitrary base month.
Variant (b) — YoY same-customer snapshot. Take the customers active twelve months ago. Denominator: their revenue then. Numerator: the same customers’ revenue now. One ratio, two points in time. Intuitive and widely quoted; blind to everything that happened in between, and heavily influenced by the choice of base month.
Variant (c) — Quarterly annualized. Compare the trailing three months against the three before, for customers active in the earlier window, then raise the ratio to the fourth power. Responsive to recent movement; amplifies noise and seasonality by construction, since a single soft quarter is compounded four times.
The basis. In all three, “revenue” means MRR, plus usage when
usage_inclusive is true (the locked default). Comped customers are excluded.
Reactivation. When reactivation_inclusive is true (default), a customer
who returns within the window rejoins the numerator — they were part of the
historical base and their return is a genuine recovery. When false, the
treatment is stricter: in the YoY variant, customers with any churn event inside
the window are removed from the base entirely, so a departure-and-return cannot
be presented as retention.
Worked example
Three customers, measuring December against the prior December:
| Customer | Dec (base) | Dec (now) | Note |
|---|---|---|---|
| A | 10,000 | 12,000 | expanded |
| B | 8,000 | 0 | churned in June |
| C | 5,000 | 5,000 | flat |
| D | 0 | 9,000 | new — excluded |
YoY snapshot = (12,000 + 0 + 5,000) ÷ (10,000 + 8,000 + 5,000) = 17,000 ÷ 23,000 = 73.9%.
Customer D’s 9,000 is real revenue and does not appear. That exclusion is the metric: NRR asks what the existing base did, and adding new customers to the numerator would produce a growth rate wearing a retention label — an error severe enough that a “retention” figure above the company’s total growth rate should always be checked for it.
Note also that the TTM compounded variant on this same data would differ, because it sees B’s decline in the month it happened and compounds around it.
The choices that change the number
- Variant. Can move the figure by tens of points on the same data. Not a matter of correctness — a matter of what question is being asked.
usage_inclusive(LOCKEDtrue). For a usage-heavy business this is the largest single lever. Including usage credits genuine consumption growth; excluding it isolates committed subscription. Both are legitimate; quoting one without saying which is not.reactivation_inclusive(defaulttrue). Whether a win-back repairs retention or is excluded as a break in the relationship.usage_smoothing. Trailing-three-month smoothing of usage is available and is never the default: smoothing suppresses exactly the volatility that makes usage revenue different from subscription revenue.- Everything upstream. The reactivation window, comped exclusion, and entity resolution all move NRR before the retention calculation begins.
How it is misread
Quoting NRR without its variant and basis. The number is uninterpretable without them. This is the single most common failure in the category.
Dollar-weighted NRR read as typical customer behavior. NRR is revenue- weighted: one large customer’s expansion can carry an entire portfolio while the median customer contracts. Always read alongside logo retention and the cohort triangles.
Survivor-biased bases. Computing over customers present at both endpoints excludes everyone who churned, which produces a figure that cannot go below 100% by construction. The base must be fixed at the start.
Comparing across companies. Two firms’ NRRs are comparable only if variant, basis, window and entity resolution match — which, absent a shared standard, is almost never true.
What it cannot tell you
NRR cannot distinguish price increases from volume growth, cannot separate contractual escalators from genuine adoption, and says nothing about the cost of achieving the expansion. A base retained by heavy discounting and one retained by product value are indistinguishable in NRR alone.
How to state it
A disclosure that travels with the number. Replace the braces; keep the parenthesis.
NRR {x}% (SoF Standard v1.0: TTM compounded · usage-inclusive · reactivation-inclusive · 3-month window) Before you quote it
- Base fixed at the start, new customers excluded?
- Variant named?
- Usage treatment stated?
- Reactivation treatment stated?
- Read with GRR and logo retention?
Related questions
- What is net revenue retention?
- Net revenue retention is the revenue a fixed set of existing customers generates now, divided by what the same customers generated at the start of the period, with expansion counted and new customers excluded. Above 100 percent the installed base grows on its own; below 100 percent new sales are refilling a leaking bucket. Under the SoF Standard the default is the monthly-cohort compounded trailing-twelve-month variant, usage-inclusive and reactivation-inclusive.
- Is NRR the same as net dollar retention (NDR)?
- Yes. NDR, net revenue retention rate and dollar-based net retention are the same measure under different names; filings also use "net expansion rate" for close cousins. The name says nothing about the variant, the basis or the window, and those are what determine the number.
- What is the difference between NRR and GRR?
- Both measure the same fixed customer base over the same window. NRR lets expansion offset losses, so it can exceed 100 percent. GRR caps each customer at its own starting revenue, so expansion cannot conceal churn and the figure is bounded at 100 percent. The gap between them is the expansion rate of the retained base, and either number alone invites a conclusion the other would refuse.
- Does NRR include new customers?
- No. The base is fixed at the start of the window and only those customers are measured now. A "retention" figure above the company's total growth rate should always be checked for new customers in the numerator, which produces a growth rate wearing a retention label.
- Should usage revenue be included in NRR?
- The SoF Standard includes it by default and locks that choice, because consumption growth is genuine retained value. The subscription-only variant is computed alongside so the difference is visible. For a usage-heavy business this is the largest single lever on the number, and quoting either figure without saying which is the most common failure in the category.
- Do price increases count as expansion?
- Yes. NRR measures what the base is worth now versus then, and a price increase raises that value. NRR cannot separate price from volume, or contractual escalators from adoption; where that distinction matters, read the
ramp_stepsub-tag in the bridge alongside it. - Should NRR be measured monthly, quarterly or annually?
- The default is the trailing twelve months, compounded from twelve monthly cohort ratios, so a customer joining mid-year enters as soon as it has a prior month and no single base month dominates. The year-over-year snapshot is intuitive but blind to everything between its endpoints. Quarterly annualized raises one quarter to the fourth power and amplifies noise. All three are computed; the variant is named.
- Why do two analysts get different NRR from the same data?
- Because NRR depends on four choices made before the arithmetic: the variant (compounded trailing twelve months, year-over-year snapshot, or quarterly annualized), whether usage is in the basis, whether reactivations rejoin the numerator, and everything upstream such as the reactivation window, comped exclusion and entity resolution. Two NRRs are comparable only when all of these match, which without a shared standard is almost never true.
- What is a good NRR?
- The arithmetic reference point is 100 percent: above it the installed base grows without new sales. Public software companies disclose figures from roughly 100 to 130 percent under their own definitions, often averaged over twelve months and often for customers above a spend threshold. Surveys such as SaaS Capital's and Benchmarkit's report medians by ACV and ARR band. None of those is comparable to yours until variant, basis, window and entity resolution match.
- Can NRR exceed 200 percent?
- Arithmetically, yes: expansion has no ceiling. In practice, figures far above 130 percent usually signal a definition rather than a business: a spend threshold, a survivor-only base, or usage in a boom year. The sensitivity table shows how much of a high headline is definition.
- How many customers before NRR is meaningful?
- There is no arithmetic threshold. Because NRR is dollar-weighted, a small base is driven by one or two accounts. Read it with logo retention, the cohort triangle and the concentration table, and say how many customers are in the base.
Strategy of Finance. “Net revenue retention.” SoF Standard Definitions v1.0 (2026-09-18). https://www.strategyoffinance.com/standards/net-revenue-retention/