What is net revenue retention?
Revenue kept from existing customers including upgrades, after churn and downgrades. It ignores brand-new families and is not a ledger account.
Definition
Net revenue retention, or NRR, is the share of repeating sales kept from the customers you already had, after churn and downgrades, and after the upgrades those same customers bought. On the books, this is a metric, not new-logo bookings and not a ledger account.
A tutoring service uses it to ask whether last period's families still produce as much repeating revenue. New families who joined this period are left out of the ratio.
The Income Statement still shows all earned sales, including brand-new students. NRR watches only the starting customer book.
This number can sit above 100 percent when upgrades outrun losses. It is not a count of new sign-ups.
Where it shows up
Balance Sheet: Related to the existing-customer book this metric tracks.
P&L: Related to repeating sales kept, expanded, or lost after the start of the period.
See also: Gross Revenue Retention · Churn Rate · Monthly Recurring Revenue
When you look at your P&L, you will not see a line titled net revenue retention. You will see tutoring income from every family, old and new.
When NRR is above 100 percent, the starting families bought enough extra sessions to more than replace what was lost. When it is below 100 percent, churn and downgrades outran those upgrades.
The Balance Sheet does not hold this metric. Prepaid unused packages sit in deferred revenue until they are earned, and NRR is only the existing-customer story.
On the Statement of Cash Flows, collecting a new family's annual package is an operating inflow. That new family does not help this ratio, because they were not in the starting book.
Some teams put NRR on a Key Metrics Dashboard beside monthly recurring revenue. That pairing is a management view, not an account in the books.
How it works
Freeze the repeating book from customers who were active at the start of the period. That starting monthly recurring revenue is the denominator.
Follow only those customers to the end of the period. Subtract churn from families who left, subtract downgrades from families who cut sessions, and add upgrades from families who added a subject or a longer block.
Divide the ending amount from that same group by the starting amount. The result is NRR.
New families who joined after the start are excluded. Their sales are new-logo bookings, or new monthly recurring revenue, not this ratio.
Gross revenue retention stops before upgrades. It keeps the losses and leaves the expansion out, so it cannot rise above 100 percent the way NRR can.
A churn rate tells you what was lost. NRR tells you what was lost and what was added back by the customers who stayed.
Stay with the starting customer book when you read the ratio. The sales log explains who is new, and this metric explains how the old book changed.
Keep a customer-level file that supports the math. Anyone should be able to see starting dues, lost dues, cut dues, and extra dues for the same families.
Do not mix annual and monthly figures in one ratio. Convert everyone to the same monthly recurring view before you divide.
Example
A tutoring service starts the year with 50 families paying $200 a month. Starting monthly recurring revenue from that group is $10,000.
During the year, 5 families leave, which is $1,000 lost. Another 5 families drop from two subjects to one, which is $500 lost.
Eight families add a second subject, which is $1,600 gained. No new families are added to this math even if the front desk is busy.
The ending book from the original 50 is $10,000 minus $1,000 minus $500 plus $1,600, or $10,100. NRR is $10,100 divided by $10,000, or 101 percent.
If the service also signed 12 brand-new families, those sign-ups raise monthly recurring revenue and bookings. They do not raise this 101 percent.
Common mix-ups
Net revenue retention is not new-logo bookings. Bookings from brand-new families sit outside this ratio, which only follows the starting customer book.
Net revenue retention is not gross revenue retention. Gross revenue retention ignores upgrades, and NRR puts those upgrades back in after churn and downgrades.
Net revenue retention is not a ledger account. You will not find it in the chart of accounts next to tutoring income.
Related terms
- Gross Revenue Retention: Revenue kept from existing customers before any expansion is counted.
- Churn Rate: The share of customers or revenue lost over a period.
- Monthly Recurring Revenue: Normalized subscription revenue for a single month.
- Annual Recurring Revenue: Monthly recurring revenue expressed on a yearly basis.
- Recurring Revenue: Revenue that repeats on a subscription or contract schedule.
- Customer Lifetime Value: The total margin a customer is expected to produce before leaving.
- Revenue: The total value of goods and services the business earned in a period.
- Bookings: The contract value signed in a period, whether or not it has been billed.