Why Your SaaS Company’s NRR Struggles Despite Strong GRR

Here’s a question I get a lot from early-stage CEOs:

“Our GRR is good but NRR is sad; what are we missing?”

They often celebrate strong Gross Revenue Retention (GRR) as proof their business is doing well, but then quickly realize their Net Revenue Retention (NRR) is not keeping pace.

While GRR tells you how well you’re holding onto existing customers, NRR reveals how much your customers are growing with you.

The gap between these metrics shows missed opportunities—and the good news is you can close that gap with the right approach.

Let’s explore how.

GRR vs. NRR – What’s the Difference and Why It Matters

Many CEOs understand the difference between GRR and NRR but often undervalue NRR as the more critical metric.

High GRR can create a false sense of security, masking deeper issues like stagnant growth or missed opportunities for expansion.

But understanding the difference is critical and can be the key to unlocking growth in your SaaS business.

While both metrics measure aspects of customer revenue, they serve different purposes and reveal unique insights about your company’s health. Let’s break this down further.

GRR Definition

Gross Revenue Retention (GRR) measures how much of your existing revenue base you keep over a set timeframe, without factoring in upsells or expansion revenue. It’s a way of calculating the stability of your recurring revenue streams by focusing on your current customer base.

GRR is expressed as a percentage and is calculated by dividing the recurring revenue from existing customers at the end of a period (excluding any expansions or upsells) by the recurring revenue at the beginning of the same period, whether it’s your current fiscal quarter or trailing twelve months.

For example, if your SaaS company starts the quarter with $1 million in recurring revenue and ends it with $950,000 after accounting for churned revenue and downgrades, your GRR would be 95%. This metric gives you a clear picture of your effective retention rate, emphasizing customer satisfaction and stability within your existing revenue streams.

GRR is especially valuable for identifying issues with customer churn, downgrades, and overall product-market alignment. If your GRR is below 90%, it may indicate dissatisfaction or misalignment in your offering that needs immediate attention.

NRR Definition

Net Revenue Retention (NRR) goes beyond GRR by including expansion efforts like upsells and cross-sells. It reflects not only how well you retain existing customers but also how effectively you deliver them more and more value over time.

The calculation for NRR is recurring revenue at the end of a period (including expansions) divided by your recurring revenue at the beginning of the same period, then multiplying by 100 to get a percentage.

For instance, if you started the quarter with $1 million in annual recurring revenue (ARR), lost $50,000 due to customer churn and downgrades (churn ARR), but added $100,000 through upsells and subscription upgrades (expansion ARR), your NRR would be 105%. This means your customer base is growing in value, not just staying steady.

NRR is a key metric for SaaS companies because it captures the maturity of your subscription business.

High NRR shows strong customer retention paired with effective cross-sell and upsell strategies. Conversely, low NRR can point to missed opportunities for growth or issues with expansion ARR.

Why It Matters

GRR and NRR together provide a complete view of your customer retention and revenue growth. GRR highlights the health of your current revenue base by focusing on how much recurring revenue you’re able to keep. In contrast, NRR uncovers your ability to drive more value and therefore more expansion revenue through upsells and cross-sells.

If GRR is high but NRR the same (or only slightly higher), it means customers are staying but aren’t growing their value with you. This often indicates that while your product may meet initial needs, it isn’t evolving with your customers’ goals.

On the flip side, if your NRR is high, it signals strong alignment with customer satisfaction and expansion opportunities, making it a key driver of SaaS growth and valuation.

By understanding the differences and tracking both metrics, SaaS leaders can identify whether their focus should be on reducing churn or maximizing expansions. For early-stage companies, prioritizing both gross retention rate and net retention rate is essential to building a scalable, profitable business.

Common Reasons for Low NRR in SaaS Companies

A new customer signs on, excited about what your product can do.

They start using it, maybe even achieve a small win, but over time, the enthusiasm fades.

They continue paying but never explore the deeper capabilities or expand their usage. Their account stagnates.

This scenario happens more often than you’d think, and it’s a major reason why Net Revenue Retention struggles despite strong gross retention.

Often, these NRR issue starts with a narrow focus on product adoption. Companies put all their energy into getting customers up and running but fail to ensure those customers see true, ongoing value.

Without a clear plan to grow the relationship, opportunities for expansion slip through the cracks.

Another common culprit is the lack of a proactive customer experience strategy. Without one, it’s easy to miss signals that a customer is ready for an upsell or cross-sell.

Delays in onboarding are also a key factor. When customers take too long to realize value, momentum slows, and conversations about additional products or services never begin.

These challenges are fixable, but they require a shift in focus—from simply retaining customers to actively growing their accounts.

Diagnose Your NRR Problem: Key Metrics to Track

To fix your NRR, you need to know what’s wrong.

Start by looking at your metrics.

Time to Value (TTV) is a great place to begin. How long does it take your customers to see success with your product? The longer it takes, the harder it is to grow their accounts.

Product adoption is another key metric—are customers engaging deeply, or just scratching the surface?

Health scores for your top accounts can also show you where to focus your efforts. Are these accounts ready for expansion, or are they at risk?

Finally, tracking renewals and churn gives you a clear picture of where you might lose revenue before you even try to grow it.

Solutions to Improve NRR and Drive Expansion Revenue

Improving NRR isn’t about doing one big thing; it’s about making small, consistent changes that drive results.

Start by adopting a clear customer experience (CX) methodology. This gives your team a roadmap to guide customers toward success. Next, optimize your onboarding process.

The faster customers see results, the sooner they’ll be ready for upsells.

You should also create specific playbooks for account growth. These help your team know exactly what to do to expand accounts.

Lastly, set up regular meetings to review your strategies. Make adjustments based on what’s working and what’s not.

How Strong NRR Enhances SaaS Valuation and Growth

If you want to raise your company’s valuation or attract investors, improving NRR is one of the smartest moves you can make. High NRR shows that your customers aren’t just sticking around—they’re spending more. This reduces your reliance on new customer acquisition, which is often expensive.

The best SaaS companies have NRRs over 120%, and some even go beyond 130%.

These businesses consistently expand their customer accounts, which gives them a major advantage in the market.

If you can achieve this, you’ll not only grow faster but also increase your company’s value significantly.

Conclusion

Strong GRR is a good start, but it’s not the finish line. To grow and scale your SaaS business, you need to focus on improving NRR. By identifying your gaps, tracking the right metrics, and implementing a clear CX strategy, you can turn retention into growth.

Are you ready to close the gap between GRR and NRR?

Start by assessing your CX processes today.

Understand your GRR, NRR, and valuation impact. Get insights into how small metric changes can drive big gains. Download our free NRR calculator now!