Retention is where SaaS valuations are won or lost. Two companies with the same growth rate are worth very different amounts if one keeps and expands its customers and the other replaces them. Net revenue retention (NRR) and gross revenue retention (GRR) put that difference into two numbers, and both should be rebuildable from your ARR bridge.
The formulas
Take the cohort of customers that existed at the start of the period (commonly twelve months ago) and their ARR at that date.
- NRR = (starting ARR + expansion − contraction − churn) ÷ starting ARR, for that cohort only.
- GRR = (starting ARR − contraction − churn) ÷ starting ARR, for that cohort only.
| Cohort ARR, 12 months ago | $2,000,000 |
|---|---|
| Expansion in the cohort | +$300,000 |
| Contraction | −$60,000 |
| Churn | −$140,000 |
| NRR | 105% |
| GRR | 90% |
Definition choices that move the number
- Period. Trailing twelve months is standard. Quarterly annualized numbers are noisier.
- Customer versus contract. A customer with two contracts, one cancelled and one expanded, nets out at the customer level. Decide which level you measure and say so.
- Price increases. They count as expansion, but call them out so the board does not read them as product adoption.
- Usage revenue. Include it only if it is in your ARR definition; otherwise volatility in usage will swing NRR.
- Reactivated customers. If a churned customer returns within the window, treat consistently with your ARR bridge.
Cohort view
A single NRR number hides the shape. A cohort table (customers grouped by start quarter, ARR tracked each quarter after) shows whether newer cohorts retain better or worse than older ones, which matters more to a buyer than one blended percentage.
What drives each one
- GRR is the floor: product fit, onboarding, support and pricing discipline. Improving it is usually the cheapest growth available.
- NRR adds expansion: seat growth, usage, upsell paths and price.
Reconciling to the books
Retention is calculated from subscription data, so it should reconcile to the ARR bridge, and the ARR bridge to recognized revenue. When the three agree, the retention slide in the board deck will survive diligence.
We calculate NRR and GRR monthly from your billing data, show the cohort table in the finance pack and document the definitions on one page.
Logo retention versus revenue retention
Logo retention counts customers; revenue retention weights them by ARR. A company can keep 95% of logos and still have weak GRR if the largest customers are the ones leaving, or lose many small logos with little revenue impact. Report both, and show the revenue concentration that explains any gap.
Segment it
Retention behaves differently by customer size, plan and acquisition channel. A blended NRR of 108% might be 125% in mid-market and 85% in self-serve. The segmented view tells you where product and customer success investment will move the number.
Monthly versus annual contracts
Monthly customers can leave any month; annual customers only at renewal. For annual contracts, measure retention at renewal events as well as on a trailing basis, or a strong quarter of renewals followed by a weak one will swing the trailing number.
What good diligence looks for
- Definitions written down and applied consistently.
- Retention calculated from the billing system, not from a CRM field.
- Cohort tables that show older cohorts stabilizing.
- An explanation for every large churn or contraction event.
Sources
Questions founders ask
Can GRR be above 100%?
No. Gross revenue retention excludes expansion, so it is capped at 100%. Only NRR can exceed 100%.
Should new customers acquired during the year be included?
No. Both metrics measure the cohort that existed at the start of the period. New customers belong in new ARR, not retention.
