Gross vs Net Revenue Retention: Two sides of the same coin for SaaS

Why Revenue Retention is a Critical SaaS Metric

For a SaaS founder preparing for a fundraise, few metrics get as much scrutiny as revenue retention. Investors want to understand not just if you are growing, but how sustainably you are growing. This is where Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) become critical. Uncertainty over which metric investors prioritise and what each one really signals can derail fundraising conversations. These two numbers tell distinct, yet complementary, stories about your business's health, product stickiness, and potential for efficient growth. Understanding how to calculate and interpret them, even with imperfect data, is fundamental to proving your business model.

While often discussed in the context of funding rounds, mastering these metrics is essential for day-to-day operations. They act as a barometer for customer satisfaction and a guide for strategic decisions. A clear view of revenue retention helps you allocate resources effectively, whether it's investing in customer success to reduce churn or refining your product roadmap to drive expansion.

GRR vs. NRR: Defining the Core Concepts

Before diving into calculations, it's essential to grasp the core concepts. Both GRR and NRR begin by analysing a specific group of customers, known as a customer cohort, over a defined period, typically a month or a year. The foundation for both is your Monthly Recurring Revenue (MRR), the predictable revenue you earn from subscriptions. They are truly two sides of the same coin, with one focusing on preservation and the other on growth.

Gross Revenue Retention (GRR)

Gross Revenue Retention (GRR) measures your ability to retain revenue from an existing customer cohort, ignoring any new revenue from upsells or expansion. It is a pure measure of customer satisfaction and product necessity. The calculation only accounts for revenue lost from cancellations (churn revenue) and downgrades (contraction revenue). Because it excludes any form of expansion, Gross Revenue Retention (GRR) can never be over 100%. It's the truest indicator of your baseline customer health and the stability of your revenue foundation.

Net Revenue Retention (NRR)

Net Revenue Retention (NRR), on the other hand, measures your ability to not only retain but also grow revenue from that same customer cohort. It starts with the same base as GRR but adds back any expansion revenue generated from upsells, cross-sells, or pricing increases. NRR provides a powerful story about your internal growth momentum. An NRR over 100% indicates that your existing customer base is a source of growth, offsetting any losses from churn and contraction. This is often referred to as "negative churn."

The Story Your Retention Metrics Tell Investors

Investors analyze GRR and NRR together to build a complete picture of your company's health, assessing both risk and growth efficiency. They are not just looking for a single good number; they are looking for a coherent story told by both metrics. A strong narrative supported by solid retention figures can significantly influence your company's valuation and the success of your fundraise.

GRR: The Story of Stability and Product Stickiness

GRR tells the story of product 'stickiness' and risk. A high GRR shows that your product is valuable and that customers are not leaving. This is the foundation of a stable SaaS business. A low GRR, for example below 80% for SMB-focused SaaS, can be a red flag. It suggests a 'leaky bucket' problem where churn is high, meaning you have to work much harder on new customer acquisition just to stand still. No amount of new sales can sustainably fix a core product or customer satisfaction issue reflected in a poor GRR.

NRR: The Story of Growth and Capital Efficiency

NRR tells the story of growth 'momentum' and capital efficiency. This metric is what investors use to assess growth efficiency and justify higher valuation multiples. An NRR over 100% demonstrates that you can grow revenue without spending more on sales and marketing to acquire new customers. In practice, we see that crossing the 100% NRR threshold is a major milestone for a Series A company. It proves the business model can scale efficiently and that your product has built-in growth levers.

How High NRR Can Mask Underlying Problems

A high NRR can sometimes mask underlying problems if viewed in isolation. Consider this scenario: An example of high NRR masking high churn: NRR is 115% but GRR is only 75%. An investor sees this and thinks: the growth from existing customers is strong, but why are so many customers leaving in the first place? This combination suggests that while your sales or account management team is excellent at upselling a portion of your user base, there may be a fundamental problem with the product, onboarding, or customer support that is causing a high customer churn rate. Investors look for a healthy balance, where a strong GRR provides a stable foundation for the growth demonstrated by NRR.

How to Measure Revenue Retention in SaaS (Even with Messy Data)

The reality for most early-stage startups is that financial data can be messy. Disconnected billing and CRM data complicate separating churn, contraction, and expansion revenue. But you can still get accurate GRR and NRR figures without a dedicated finance team or expensive software. The key is a methodical approach to your subscription revenue tracking.

Let's walk through a numerical example using a customer cohort from the start of a month. Your primary tools will be your billing system (like Stripe) and a spreadsheet.

1. Define Your Starting Cohort: At the beginning of the month (e.g., April 1st), identify your existing customer base and their total MRR. Let's say your starting MRR is $50,000.
2. Calculate Revenue Lost: Over the course of April, track two types of revenue loss from that starting cohort:
   • Churn Revenue: Customers who cancel their subscriptions, resulting in $4,000 of lost MRR.
   • Contraction Revenue: Customers who downgrade to a cheaper plan, resulting in $1,000 of lost MRR.
3. Calculate Your GRR: Your retained revenue is your starting MRR minus churn and contraction. Your GRR is this retained revenue divided by the starting MRR.
4. Retained Revenue = $50,000 - $4,000 - $1,000 = $45,000
5. GRR = $45,000 / $50,000 = 90%
6. Account for Expansion Revenue: During the same month, identify revenue growth from customers in your starting cohort. See our guide to Expansion Revenue Tracking for playbooks on this.
   • Expansion Revenue: $8,000 in new MRR from upsells and cross-sells.
7. Calculate Your NRR: Your net retained revenue is your retained revenue plus your expansion revenue. Your NRR is this net figure divided by the starting MRR.
8. Net Retained Revenue = $45,000 + $8,000 = $53,000
9. NRR = $53,000 / $50,000 = 106%

Tips for Managing Your SaaS Cohort Analysis

To manage this process, you can build a simple dashboard in a spreadsheet. Export customer subscription data from your billing system monthly. Create columns for Starting MRR, Churn, Contraction, and Expansion for each customer cohort. This SaaS cohort analysis, while manual, provides the visibility you need. Be mindful of common edge cases: for annual contracts, divide the total contract value by 12 to get an equivalent MRR. For any non-recurring revenue like setup fees or consulting services, exclude them entirely from this analysis. See the spreadsheet template for an example dashboard in our SaaS metrics dashboard guide.

SaaS Retention Benchmarks: What Does "Good" Look Like?

Lacking reliable benchmarks for GRR vs NRR hampers forecasting and resource allocation. While every business is different, there are established benchmarks that can help you set realistic goals and communicate your performance to investors. These benchmarks typically vary based on your average customer size.

For Gross Revenue Retention, the target depends heavily on who your customers are. For companies serving small and medium-sized businesses (SMBs), churn is naturally higher due to factors like business failure and lower switching costs. Therefore, a good GRR benchmark is 80% or higher for SMB customers. In contrast, companies serving larger organizations see less churn because their products are often deeply integrated into customer workflows. For them, a good GRR benchmark is 90% or higher for Mid-Market/Enterprise customers. Generally speaking, a high GRR is ideally 90% or higher. Underscoring this, a 2022 survey by Paddle found that SaaS companies in the top quartile have a GRR of 90% or higher.

For Net Revenue Retention, the goal is always to be over 100%. This shows your business has a sustainable internal growth engine. A good NRR benchmark is between 100-120%. Once you begin to climb higher, you enter the top tier of SaaS performance. For instance, a high Net Revenue Retention (NRR) is ideally 110% or higher. Pushing beyond that is a sign of an exceptionally efficient growth model; an NRR above 120% is considered elite for a SaaS business, and the elite NRR benchmark is 120% or higher.

From Metrics to Strategy: Driving Growth with Retention Data

Successfully navigating how to measure revenue retention in saas comes down to more than just calculation; it's about action. Use these metrics to diagnose problems and identify opportunities. One metric without the other tells an incomplete story. By using them together, you can build a healthier, more durable SaaS business.

Diagnosing Your 'Leaky Bucket' with GRR

A declining GRR is a clear signal to investigate your customer experience. Use it as a diagnostic tool for product health and customer satisfaction. If GRR is falling, segment your data to find the cause. Is churn concentrated among new customers? This could point to a weak onboarding process. Are customers on a specific plan leaving? Perhaps that pricing tier is misaligned with the value provided. A low GRR should trigger investments in customer success, product improvements, or better support to address the root causes of churn.

Unlocking Efficient Growth with NRR

NRR is your guide to capital-efficient growth. A stagnant NRR below 100% should prompt a deep analysis of your potential for upsell and expansion revenue. Are there features you could move to a higher tier? Is there an opportunity to add new modules or services that existing customers would pay for? Analyzing the customers who *do* expand can reveal patterns you can replicate across your user base. A strong NRR strategy focuses on delivering more value to happy customers, creating a powerful, self-sustaining growth loop.

Ultimately, don't wait for perfect data systems. Start your monthly recurring revenue analysis now using exports from your billing system and a spreadsheet. The historical trend is often more important to investors than a single month's number, so building that history is crucial. By understanding the two stories your retention metrics tell, you can have more productive fundraising conversations and make smarter strategic decisions. See the SaaS metrics hub for related guides and benchmarks.

Frequently Asked Questions

Q: Can Gross Revenue Retention (GRR) ever exceed 100%?
A: No, GRR can never be over 100%. Its calculation only includes revenue that is retained or lost from a starting cohort; it explicitly excludes any form of expansion or upsell revenue. A 100% GRR would mean you lost zero revenue from customer churn or downgrades during the period.

Q: What is the difference between revenue churn and customer churn?
A: Customer churn measures the percentage of customers who cancel their subscriptions in a period. Revenue churn (used in GRR/NRR) measures the amount of MRR lost from those cancellations and from downgrades. You could have a low customer churn rate but a high revenue churn rate if your highest-paying customers are the ones leaving.

Q: How does 'negative churn' relate to Net Revenue Retention (NRR)?
A: Negative churn is another way of describing an NRR of over 100%. It occurs when the expansion revenue from your existing customers (upsells, cross-sells) is greater than the revenue you lose from churn and downgrades. Achieving negative churn means your existing customer base is a net source of growth.

Q: How often should we conduct a SaaS cohort analysis?
A: A monthly recurring revenue analysis is the standard cadence for most SaaS businesses. Tracking GRR and NRR on a monthly basis allows you to spot trends quickly and react to changes in customer behavior. For board reporting and strategic planning, it is also common to look at these metrics on a quarterly and annual basis.