Definition
Net revenue retention (NRR) measures how much recurring revenue a group of existing customers generates now, compared with what the same customers generated a year earlier. It includes upgrades and price increases, subtracts downgrades and cancellations, and ignores revenue from new customers. A figure above 100% means existing customers are spending more over time, even after some have left.
Recurring revenue comes back without being won again each time, through subscriptions, retainers or service contracts. Contracted revenue is the part committed for a fixed term.
Worked example
Brookmere Analytics is a fictional Canadian software business. Twelve months ago, the customers it had at that point paid C$1,000,000 of ARR. Over the year, the same customers:
- upgraded or added seats worth C$180,000
- downgraded by C$30,000
- cancelled contracts worth C$70,000
NRR = (C$1,000,000 + C$180,000 minus C$30,000 minus C$70,000) divided by C$1,000,000 = 108%.
The business also signed new customers worth C$300,000 of ARR during the year, but they do not count towards NRR.
Annual recurring revenue (ARR)
Annual recurring revenue is the yearly value of subscription or contracted revenue expected to repeat, measured at a point in time. Software businesses are often priced as a multiple of it.
Why buyers care
NRR shows whether a software business grows from the customers it already has or depends on constant new sales. Strong retention usually means the product is embedded in how customers work. Weak retention means a new owner must keep spending on sales and marketing just to hold revenue steady.
Ask exactly how the seller calculates it: over which period, from which group of customers and whether a one-off price rise or a single large expansion accounts for most of the result. Recalculate it from customer-level billing data. Loupe's valuation tool treats strong net revenue retention as a positive adjustment for SaaS businesses.
A holdback is part of the purchase price the buyer keeps back at completion and pays later if no valid claims arise. Unlike escrow, the money stays with the buyer.