---
title: "Net Retention"
type: doc
evidence_type: method
category: "Measuring Metrics"
publisher: "LeanScale"
date_modified: 2023-10-03
word_count: 346
topics: ["forecasting", "revenue-operations"]
canonical_url: https://knowledge.leanscale.team/docs/measuring-metrics-customer-success-metrics-net-retention/
source: "LeanScale Knowledge Hub — https://knowledge.leanscale.team"
license: "Free to quote and cite with attribution to LeanScale."
---

# Net Retention

**Evidence type:** method (what we prescribe)

Gross retention measures what was kept; net retention measures what was kept plus what expanded. The pair matters because strong expansion can mask churn in the net number, so both are read together, over a consistent time frame, using a stated calculation.

### Net and Gross Retention

Net and gross retention rates are two important metrics for measuring customer success. Net retention rate measures the percentage of revenue retained from existing customers over a specific time period, while gross retention rate measures the percentage of customers retained over the same period.

#### Time Frame

Both net and gross retention rates are time-bound metrics, meaning that they must be measured over a specific time period. The most common time periods used are monthly, quarterly, and annually. When reporting on net or gross retention rate, it is important to specify the time period being measured.

#### Calculation

**Gross retention rate** is calculated by dividing the number of customers at the end of a time period by the number of customers at the beginning of the period. For example, if a company has 100 customers at the beginning of a month and 90 customers at the end of the month, its gross retention rate for that month would be 90%.

**Net retention rate** is calculated by multiplying the gross retention rate by the average revenue per customer (ARPC). 

> **Tip:** ```
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> For example, if a company has a gross retention rate of 90% and an ARPC of $100, its net retention rate would be 90% * $100 = $90.
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#### Visualization

The best way to visualize net and gross retention rates is with a waterfall chart. A waterfall chart shows the starting ARR, churn, contraction, expansion, and ending ARR. The Y-axis of a waterfall chart is typically dollars, while the X-axis shows the time period being measured.

#### Interpretation

Net and gross retention rates can be used to measure the health of a company's customer base. A high net retention rate indicates that a company is successfully retaining its customers and growing its revenue. A low net retention rate can indicate that a company is losing customers and/or not growing its revenue quickly enough.

#### Conclusion

Net and gross retention rates are important metrics for measuring customer success. By tracking these metrics, companies can identify trends in their customer base and make adjustments to their customer success strategies as needed.

## Canonical

https://knowledge.leanscale.team/docs/measuring-metrics-customer-success-metrics-net-retention/