---
aliases: ["The SaaS Metric That Actually Matters"]
Is A: Evergreen
Topics: ["[[topic-saas-business]]"]
Status: Published
---
# The SaaS Metric That Actually Matters
Everyone talks about MRR, ARR, and churn rate. These are important. But the metric that actually tells you whether your business is healthy is net revenue retention (NRR) — the percentage of revenue from last year's customers you're retaining this year, including expansions.

NRR > 100% means your existing customers are spending more than they were. This is the signature of product-market fit: customers who stay and spend more because the product keeps improving and becoming more embedded in their workflows.

A business with 80% NRR is structurally fragile. A business with 120% NRR is almost impossible to kill.

The power of NRR as a diagnostic metric is that it captures multiple dimensions of business health in a single number. High NRR means low churn (customers are not leaving), strong product-market fit (customers are expanding usage), and effective pricing (the pricing model captures value as usage grows). Low NRR can mean any combination of these factors is failing, and decomposing NRR into its components — gross retention, contraction, and expansion — tells you exactly where the problem lies. I have seen founders obsess over MRR growth while ignoring an NRR of 85%, which means they are filling a leaky bucket. No amount of new customer acquisition fixes a retention problem.

The NRR benchmark varies meaningfully by market segment. Enterprise SaaS products typically target 120-130% NRR because large accounts have natural expansion opportunities — more seats, more teams, higher tiers. SMB products often settle for 90-100% because small businesses churn at higher rates and have limited expansion potential. Understanding which benchmark applies to your market is critical for not either panicking about a number that is actually healthy or celebrating a number that is actually mediocre for your segment.

What makes NRR particularly interesting from a content business perspective is that the concept translates directly to newsletter economics. A newsletter's "NRR" is whether last year's sponsors are spending more this year. If your returning sponsors are increasing their commitment — longer contracts, bigger packages, additional placements — that is the clearest possible signal that your content is generating real value. In Refactoring's case, tracking sponsor NRR was what gave me confidence that the business model was sound well before revenue was large in absolute terms. Sponsors who renewed at 120%+ of their initial spend were telling me, with their budget decisions, that the newsletter was working for them.

## Key insight
Net revenue retention is the single metric that separates structurally healthy businesses from structurally fragile ones. A high NRR means your product is becoming more valuable to existing customers over time, which creates a compounding revenue base that grows even without new customer acquisition. The most important question for any SaaS founder is not "how do I acquire more customers?" but "how do I make existing customers want to spend more?" The answer to the second question makes the first question easier and less urgent.

## Related
- [[the-sponsorship-relationship]] — Sponsor retention as the newsletter equivalent of NRR
- [[small-teams-scale-through-systems]] — Systems that improve customer experience drive NRR
- [[open-source-as-marketing]] — NRR is the critical conversion metric for open-source to paid transitions
- [[b2b-content-is-trust-not-traffic]] — Trust-driven content creates the kind of engagement that drives sponsor NRR
- [[note-the-lean-startup]] — The build-measure-learn cycle applied to improving retention
