How Do You Calculate Net Revenue Retention?
Revenue grew last year, and in the budget meeting someone asks how much of that growth came from customers you already had, and how much was new business covering for the accounts that quietly left or cut back. Nobody can answer without a week in the spreadsheets, and the answer shapes how next year's budget splits between winning new customers and keeping existing ones, so how do you calculate net revenue retention?
To calculate net revenue retention, take the recurring revenue existing customers paid at the start of a period, add expansion, subtract contraction and churn, then divide by that starting revenue, leaving out new customers.
A single company-wide figure can look healthy while one type of customer is leaving, so the sections below show how to break it down, how it differs from gross revenue retention, what counts as good, and why we check it in gross profit as well as revenue.
What Is Net Revenue Retention, and How Is It Calculated?
Net revenue retention (NRR) is the share of recurring revenue you keep and grow from a fixed group of existing customers over a period, usually a year, after upgrades, downgrades and cancellations. The formula is (starting recurring revenue + expansion − contraction − churn) ÷ starting recurring revenue, shown as a percentage, and customers who signed during the period are left out.
- Choose the period, usually the last twelve months, and the date it starts.
- List every customer paying you on that date and the yearly value of what they were paying, such as subscriptions, retainers or service agreements, and leave out one-off project revenue.
- Add expansion from those same customers: upgrades, added sites or seats, extra services and price increases.
- Subtract contraction: downgrades, dropped sites, discounts given to keep the account.
- Subtract churn, the full yearly value of customers who left.
- Divide the result by the starting figure, then repeat the calculation for each type of customer, because the company-wide figure is an average of groups that can move in opposite directions.
The last step is the one the formula pages we reviewed tend to leave out, and in our experience it’s where the useful answer sits. Group customers the way your sales team already does, by industry, size or ownership, which is the same grouping the IMPACT Prospect step uses to find the buyers worth more of your marketing.
What Is the Difference Between Net Revenue Retention and Gross Revenue Retention?
Gross revenue retention (GRR) uses the same starting group and period but ignores expansion, so it’s (starting recurring revenue − contraction − churn) ÷ starting recurring revenue, and it can never be higher than what you started with. Net revenue retention shows whether your existing customers are growing overall, while gross revenue retention shows how much you’re losing before any growth covers it.
Read the two together, because net revenue retention can hide a churn problem. A few large accounts expanding can cover a steady stream of smaller customers leaving, and the net figure will look fine until those large accounts stop growing. When the net figure is steady and the gross figure is falling, your customer base is depending on fewer accounts each year, and the IMPACT Prospect page’s section on customers who buy once and never return is the place to look for why.
What Is a Good Net Revenue Retention Rate?
The most recent benchmark with a stated sample we found is Benchmarkit’s 2026 report, a survey of 342 B2B software companies, which put median net revenue retention for calendar 2025 at 102% across the 230 that reported it, and median gross revenue retention at 84% across 226.1 The report treats 100% as the minimum to aim for,1 which makes sense because below it the existing customer base shrinks each year and new customers first have to replace the loss before the company can grow.
Use those figures with care, because net revenue retention is mostly a subscription-software metric. The companies in that survey sell software on monthly or annual subscriptions, the figures are self-reported, and the report doesn’t publish the formula each company used.1 In our reading, software customers can often add seats or usage without a new sale, which would explain why expansion carries so much weight in those figures.
For a service business with recurring agreements, such as maintenance contracts, retainers or managed services, we haven’t found a published benchmark that states its method. The comparison that matters is your own history, calculated the same way for each of the last two or three years and for each type of customer, because a falling rate in one group tells you more than any industry average.
How Do You Calculate Net Revenue Retention for a Service Business?
Calculate net revenue retention for a service business the same way, using the yearly value of recurring agreements as the starting revenue, counting added sites and price increases as expansion, and keeping project work out of it. Project work, such as installations or one-off jobs, belongs in your lifetime value calculation as a separate line, because it doesn’t renew.
ExampleA hypothetical year of the contractor’s maintenance agreements, by type of customer
The example we follow across this site is a commercial HVAC contractor doing about $40M a year, whose maintenance agreements cost $12,000 a year per building. Property management firms average about three buildings and stay about seven years, so roughly one firm in seven leaves each year; owner-occupied businesses have one building and stay about five years, so roughly one in five leaves. Firms also add buildings to their agreements as they take on new properties.
The cohort below is our own hypothetical illustration built from those facts, not the contractor’s actual figures. It starts the year with 20 property management firms (60 buildings) and 40 owner-occupied businesses.
- Property management firms: $720,000 at the start, + $144,000 for 12 buildings added, − $12,000 for one building a firm stopped managing, − $108,000 for 3 firms that left
- $744,000 a year later: NRR 103%, GRR 83%
- Owner-occupied businesses: $480,000 at the start, − $96,000 for 8 businesses that left
- $384,000 a year later: NRR 80%, GRR 80%
- All customers: $1,200,000 at the start
- $1,128,000 a year later: NRR 94%, GRR 82%
The blended 94% looks like a mild leak, but it’s the average of a group that grows on its own and a group that loses a fifth of its revenue every year, and those two call for opposite decisions about where the marketing goes.
The by-type view is also what feeds lifetime value, since churn by type is the input for how long each type of customer stays. Our guide to calculating customer lifetime value shows how to turn that churn into years and gross profit.
Why Should You Check Net Revenue Retention in Gross Profit Too?
Check net revenue retention in gross profit as well as revenue, because a dollar kept from a low-margin customer is worth less than a dollar kept from a high-margin one, and expansion won with discounts can lift the revenue figure while profit falls. Run the same formula with each line multiplied by its gross margin, which gives you what we call gross profit retention.
ExampleWhat a retained dollar is worth at the contractor
Each dollar of agreement revenue kept from a property management firm carries 38 cents of gross profit, while a dollar kept from a school or public bid carries 22 cents, so two groups with the same revenue retention can be keeping different amounts of profit.
Once you have both figures by type of customer, put them to work:
- Track net and gross revenue retention every quarter, on the trailing twelve months, for each type of customer, from your CRM or billing records rather than a one-off spreadsheet, using the same source of truth the Channel Selection step sets up for marketing results.
- Look at who is leaving before funding a retention program, because poor gross retention in one group can point to a targeting problem that no renewal campaign will fix.
- Separate price increases from real growth in expansion, since a year of price rises can lift the figure while customers buy less.
- Feed the results into lifetime value and targeting, and use how to increase customer lifetime value to decide which lever to work on for the types worth keeping.
Run It on Last Year’s Customers, One Type at a Time
Pull the customers who were paying you twelve months ago, split them by type, and calculate net and gross revenue retention for each group before anyone sets next year’s targets. The IMPACT Prospect step shows how to compare those groups on lifetime gross profit and decide which one your marketing should aim at.
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