Navigator
Startup
Retention & Customer Success

Net Revenue Retention (NRR): The SaaS Health Metric

Understanding why NRR > 100% is the holy grail—and what it means for your business.

• Navigator Team
NRR net revenue retention expansion churn SaaS metrics

You have $1M in ARR (Annual Recurring Revenue).

During the year:

  • Customers churn: -$200k
  • New customers: +$300k
  • Expansion: +$150k
  • Net change: +$250k
  • Ending ARR: $1.25M

Your Net Revenue Retention: $1.25M / $1M = 125%

This means you retained 125% of your starting revenue.

You did it by keeping existing customers (with expansion), adding new customers, and losing some (but less than growth covered).

NRR > 100% is the most important metric for SaaS health.

It means you’re growing from your existing customer base alone, without even counting new customers.

The Formula

NRR = (Ending ARR - Churn + Expansion) / Starting ARR

Or more simply:

NRR = Ending ARR / Starting ARR

(This assumes new customers are excluded—you’re measuring existing customers only.)

Example:

  • Starting ARR (existing customers only): $1,000,000
  • Ending ARR (existing customers only): $1,050,000
  • NRR: 105%

You grew your existing customer base by 5% purely through retention (some churn) and expansion (some upgrades).

Why NRR > 100% Matters

If NRR > 100%, it means:

  • Your existing customer base is growing
  • Expansion revenue exceeds churn
  • You’re getting more valuable with each customer over time
  • You don’t need new customer acquisition to grow (though it helps)

This is almost impossible to achieve without expansion.

Pure retention (keeping customers, no expansion) maxes out at 100% (you’re just keeping what you have).

To exceed 100%, customers have to be expanding (upselling, cross-selling, usage-based).

NRR by Business Model

Pure SaaS (subscriptions only, no expansion):

  • Churn rate: 5% monthly
  • Expansion rate: 0%
  • NRR: ~40% annually (getting worse each month as churn compounds)

This is unsustainable. You MUST add new customers or you’ll shrink.

SaaS with expansion:

  • Churn rate: 5% monthly
  • Expansion rate: 3% monthly (customers upgrading, expanding usage)
  • NRR: ~125% annually

This is healthy. You’re growing your base through expansion, so acquisition is a bonus (not a necessity).

Enterprise SaaS:

  • Churn rate: 2% monthly (low; enterprise is sticky)
  • Expansion rate: 5% monthly (high; large budgets, always want more)
  • NRR: ~200% annually

This is exceptional. You’re growing revenue almost 2x from existing customers alone.

Calculating NRR (The Right Way)

A common mistake: Including new customers in NRR.

Wrong way:

NRR = (Existing + New - Churn + Expansion) / Existing

This inflates NRR. You’re counting new customers in the numerator but not the denominator.

Right way:

NRR = (Existing at start - Churn + Expansion) / Existing at start

You only measure what happened to customers who were there at the start.

New customers are counted separately (not in NRR, but in overall growth).

Example:

  • Starting ARR (existing customers): $1,000,000
  • Churn: -$100,000
  • Expansion: +$150,000
  • Existing customer ending: $1,050,000
  • New customers acquired: +$300,000
  • Total ending ARR: $1,350,000

NRR (existing customers only): $1,050,000 / $1,000,000 = 105%

Overall growth: $1,350,000 / $1,000,000 = 135%

You grew 35% total. But only 5% came from existing customers (NRR 105%). The other 30% came from new customers.

What’s a Good NRR?

NRR < 90%: Bad. Your business is shrinking even with new customers. Churn is too high or expansion is too low.

NRR 90-100%: Okay. You’re retaining customers but not expanding. You need new customer acquisition to grow.

NRR 100-110%: Good. Your expansion is starting to offset churn. You have some leverage.

NRR 110-130%: Very good. Your existing customer base is growing. You have real leverage.

NRR > 130%: Exceptional. Your expansion is so strong you’re growing 30%+ per year from existing customers alone.

Benchmark:

  • SaaS median NRR: 105-110%
  • Top-quartile SaaS: 120%+
  • Best-in-class (Salesforce, Adobe, etc.): 140%+

Improving NRR

To improve NRR, either:

1. Reduce churn

Lower churn = higher retention = higher NRR.

A 2% improvement in retention can move NRR from 100% to 110%.

2. Increase expansion

More expansion = more revenue from existing customers = higher NRR.

If you add a upsell motion that captures $1,000/month in expansion revenue across your base, NRR jumps.

NRR vs. Overall Growth

Don’t confuse NRR with overall growth.

High NRR is great (your base is growing). But overall growth matters more.

Example:

Company A:

  • NRR: 120% (excellent)
  • New customer growth: 5%
  • Overall growth: ~25%

Company B:

  • NRR: 105% (good)
  • New customer growth: 50%
  • Overall growth: ~60%

Company B is growing faster, even though NRR is lower.

Both matter. NRR tells you about the health of your existing base. New customer growth tells you about the health of your acquisition.

Ideally you have both:

  • Strong NRR (existing customers expanding)
  • Strong new customer growth (acquiring new customers efficiently)
  • Combined = Explosive overall growth

The NRR-to-Profitability Connection

High NRR allows you to become profitable with lower new customer growth.

Example:

Path A (High NRR, Modest New Growth):

  • NRR: 120%
  • New customer growth: 20%
  • Overall growth: 44%
  • With 20% operating margin: 44% × 0.20 = Profitable growth

Path B (Low NRR, High New Growth):

  • NRR: 95%
  • New customer growth: 50%
  • Overall growth: 47%
  • With 20% operating margin: 47% × 0.20 = Profitable growth

Both end at similar growth. But Path A (high NRR) requires less sales and marketing spend to get there.

Company A can grow fast and profitably. Company B must spend heavily on acquisition to offset churn.

The Investor’s NRR Test

When pitching to VCs, they always ask: “What’s your NRR?”

NRR > 100% is a signal that your business has inherent, compounding growth built-in.

NRR < 100% is a red flag that your business is decelerating (you need faster acquisition just to maintain growth).

Even if you’re growing fast (60% YoY), if your NRR is only 95%, investors worry:

  • You’re dependent on acquisition
  • If acquisition slows, your overall growth collapses
  • You might not be sustainable long-term

The Takeaway

NRR is the metric that separates great SaaS companies from good ones.

NRR > 100% means your customers are expanding faster than they’re churning. This is the holy grail.

To achieve NRR > 100%, you need:

  • Low to moderate churn (3-7% monthly is typical)
  • Meaningful expansion (some customers upgrading or expanding usage)

Track NRR quarterly. If it’s declining, investigate:

  • Is churn increasing? (product issue, support issue, market shift)
  • Is expansion decreasing? (fewer upsell opportunities, market saturation)

Focus on either reducing churn or increasing expansion to improve NRR.

We help you calculate NRR correctly, track it quarterly, identify what’s driving expansion or churn, and build strategies to improve it.