What Is Gross Revenue Retention? (Definition, Formula)

Gross Revenue Retention (GRR) is a fundamental business metric for companies with recurring revenue models. It assesses how effectively a company retains revenue from its existing customer base. GRR helps businesses gauge the health and stability of their core revenue streams, offering insight into customer loyalty and product value.

Understanding Gross Revenue Retention

Gross Revenue Retention measures a company’s ability to maintain revenue from existing customers over a defined period. This metric focuses on revenue remaining after accounting for customer churn and any downgrades in service or spending. It does not include additional revenue from upsells, cross-sells, or new customer acquisitions. GRR shows how much of the initial revenue base is preserved, providing insight into customer satisfaction and engagement.

Calculating Gross Revenue Retention

Calculating Gross Revenue Retention involves a formula that quantifies retained revenue from existing customers. The calculation begins with Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR) at the start of a period. From this, revenue lost due to customer cancellations (churn) and reduced spending from existing customers (downgrades) are subtracted. The result is the revenue retained from the initial customer base.

The formula for Gross Revenue Retention (GRR) is typically expressed as:

GRR = (Starting MRR/ARR – Churned MRR/ARR – Downgrade MRR/ARR) ÷ Starting MRR/ARR

For example, consider a company with a Starting Monthly Recurring Revenue (MRR) of $100,000 at the beginning of a month. During that month, the company experiences $5,000 in revenue lost from churned customers and an additional $2,000 in revenue lost from customers who downgraded their services. To calculate the GRR, you would first determine the total lost revenue ($5,000 + $2,000 = $7,000). Next, subtract this lost revenue from the starting MRR ($100,000 – $7,000 = $93,000). Finally, divide this retained revenue by the starting MRR ($93,000 ÷ $100,000 = 0.93). This calculation yields a Gross Revenue Retention of 93%.

This calculation provides a clear percentage of revenue retained from the initial customer cohort, excluding new revenue from expansion. It highlights the direct impact of customer attrition and reduced spending on the core revenue base. Businesses use this metric to track changes over time and understand their retention efforts.

The Importance of Gross Revenue Retention

Gross Revenue Retention is an important metric for businesses, particularly those with recurring revenue models like software-as-a-service (SaaS) companies. It offers insight into customer satisfaction and product value. A high GRR indicates customers are content with their subscriptions and maintain their spending levels.

GRR reflects the effectiveness of customer success initiatives. If a company invests in customer support, onboarding, and ongoing engagement, a strong GRR suggests these efforts prevent churn and downgrades. Monitoring GRR helps identify areas where customer experience is lacking, prompting businesses to address issues before significant revenue loss. GRR indicates the health and stability of a company’s core revenue base, showing reliable income from existing customers. A declining GRR can signal future growth challenges, suggesting a weakening foundation of recurring income.

Gross Revenue Retention Versus Net Revenue Retention

Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) are important metrics for assessing a company’s revenue stability from existing customers, providing different perspectives. GRR measures the percentage of recurring revenue retained after accounting for churn and downgrades, excluding additional revenue from upsells or cross-sells. It focuses solely on revenue kept from the original customer base.

Net Revenue Retention, in contrast, provides a more comprehensive view by including expansion revenue from existing customers, such as upsells or increased usage. The NRR formula factors in starting recurring revenue, adds expansion revenue, and then subtracts revenue lost from churn and downgrades. NRR can exceed 100%, indicating a company is retaining customers and growing revenue from them.

Each metric reveals unique aspects of business health. GRR highlights a company’s ability to prevent revenue erosion from its existing customer base, reflecting customer retention and the stability of its foundational revenue streams. A GRR close to 100% signifies strong customer loyalty. NRR illustrates growth momentum from the existing customer pool, showing if a company can expand relationships with current customers.