Maximizing Net Revenue Retention and Gross Revenue Retention in Your Software Business
In the world of software businesses—especially SaaS—two key metrics often shape an acquirer's perception of your company's value: Net Revenue Retention (NRR) and Gross Revenue Retention (GRR). These indicators tell the story of customer retention, expansion, and overall revenue resilience.
If you're a software business owner thinking about scaling or preparing for an eventual exit, understanding and optimizing these metrics is essential. Let’s break down what they mean and why they matter.
Understanding the Metrics: NRR vs. GRR
Gross Revenue Retention (GRR) – Measures Revenue Stability
GRR reflects how much of your revenue you retain from existing customers without accounting for upsells or expansions.
Formula:
GRR% = ((Starting MRR−Churned MRR)/ Starting MRR) × 100
Starting MRR: Monthly recurring revenue from existing customers at the beginning of the period.
Churned MRR: Revenue lost during the period due to customer cancellations or downgrades.
Why It Matters: GRR provides a clear picture of customer retention without the influence of upsells. Investors and acquirers use it to assess how "sticky" your business is. A GRR of 90%+ is generally strong.
Net Revenue Retention (NRR) – Measures Revenue Growth Within Existing Accounts
NRR includes revenue from upsells, cross-sells, and expansions, giving a broader view of customer retention and growth potential.
Formula:
NRR% = (Starting MRR −Churned MRR + Expansion MRR)/ Starting MRR × 100
Expansion MRR: Additional revenue from existing customers through upgrades, add-ons, or increased usage.
Why It Matters: A high NRR means your customers aren’t just staying—they're spending more. Many high-growth SaaS companies have NRR exceeding 110%, signalling strong organic revenue expansion.
Final Thoughts
If you want to build a software business that attracts acquirers, focusing on GRR and NRR is non-negotiable. While GRR ensures your foundation is solid (retaining existing revenue), NRR drives growth by expanding customer relationships.
There are a range of strategies that can be put in place to significantly enhance these metrics —making your business more attractive to investors and buyers. Please get in touch if you’d like to discuss your options and opportunities.
