NRR and GRR explained with one worked example

Net revenue retention (NRR) and gross revenue retention (GRR) are the two numbers investors ask for first and teams compute differently most often. Both answer a question about the customers you already had. Neither says anything about new business.

The example

Twelve months ago five customers paid you €1,000 a month in total. Today:

Customer	A year ago	Today	What happened
A	400	700	added seats
B	200	200	nothing
C	200	100	downgraded
D	100	0	cancelled
E	100	100	cancelled in spring, came back in summer
Total	1,000	1,100
F (new)	–	300	signed up four months ago

NRR = what the customers of a year ago pay today ÷ what they paid then = 1,100 ÷ 1,000 = 110 %. Customer F is not in it: F was not a customer a year ago.

GRR = the same, but no customer counts for more than they paid a year ago. A counts as 400, not 700: 400 + 200 + 100 + 0 + 100 = 800 ÷ 1,000 = 80 %.

What each number tells you

NRR says whether your existing base grows by itself. Above 100 % you would grow without a single new customer. GRR says how much of the base you keep before anybody upgrades; it can never exceed 100 %, and it is the number that shows a leak.

Read them together. 110 % and 80 % means: a fifth of the base erodes every year, and a few accounts that grow make up for it. That is a different company from 110 % and 97 %.

Three mistakes that flatter the numbers

1. Counting new customers. If F is in the numerator, NRR is 140 %. Follow last year’s customers, by identity, not “all revenue now ÷ all revenue then”.
2. Using only the customers who are still there. Dropping D from both sides turns 80 % into 89 %. The customers who left are the point.
3. Annualising a good month. Monthly net churn of −1 % compounds to about 113 % a year only if every month looks like this one. Measure twelve months by following the customers for twelve months.

Details worth deciding once

• Reactivations (customer E) count with what they pay today. They were customers a year ago and they are customers now.
• Merged customers. If two billing accounts are one company, net them before you compute, or a move from one to the other looks like a churn and an expansion.
• Several currencies. Convert each side at the rate of its own month end, and know that a large exchange-rate move then shows in NRR.
• The running month is still moving. Lead with the last complete month.

sumwerk shows both numbers for every month next to customer churn and gross and net MRR churn, with these definitions printed beside them, and the same rates per plan or any other segment of your customers.