by Trey Pruitt
In subscription businesses like SaaS, understanding and monitoring key financial metrics is critical for sustained growth. Among these, Net Revenue Retention (NRR) and Gross Revenue Retention (GRR) stand out as critical indicators of revenue health and customer loyalty. While related, these metrics offer distinct insights into revenue and customer retention.
Gross Revenue Retention (GRR) focuses on the core of customer retention by measuring the percentage of revenue retained from existing customers, excluding any new sales, expansions, or upsells. It provides a pure look at the ability of a business to maintain its revenue base over time. It is calculated by dividing the total revenue of the current period by the total revenue of the previous period. For instance, if a business retains $90,000 in revenue from the same customers who contributed $100,000 in the previous period, the GRR is 90%.
Gross Revenue Retention (GRR) measures core customer revenue retention. It is calculated by dividing the revenue retained from existing customers—excluding expansions or upsells from these customers— by the total original revenue from these customers in the previous period. For example, if a company retains $90,000 from customers who initially contributed $100,000, the GRR would be 90%
Net Revenue Retention (NRR) expands on the concept of GRR by incorporating additional revenue streams from existing customers, including upgrades, cross-sells, and upsells, while also accounting for revenue lost due to customer churn. It reflects the total revenue impact of your customer base. Using the same example, if a business starts with $100,000 from existing customers, loses $10,000 through churn, but gains an additional $30,000 in expansion revenue from customers that didn't churn, the NRR would be 120%.
Both GRR and NRR are important metrics for measuring a subscription business's revenue growth and retention, but they provide different insights. GRR measures revenue retention only, while NRR accounts for both revenue retention and expansion. Therefore, understanding these two metrics and their differences can help businesses make informed decisions about their growth strategies.
