NRR, Not ARR: Why Retention Drives Your Valuation
By Kirk W. McLaren
Investors reward predictable, expanding revenue; NRR 120%+ earns premium multiples vs flat churn dynamics. Use Cloud 100 and BVP Cloud Index to anchor expectations.
The Metric Most CEOs Overlook
Every SaaS or recurring-revenue founder knows their ARR number by heart. It’s on the dashboard. It’s in every board meeting. It’s the figure they recite when asked, “How’s the business doing?”
But here’s the uncomfortable truth: ARR alone doesn’t tell investors how strong your business really is.
In The Growth CFO Void, I wrote about how CEOs often focus on the wrong financial signals. Nowhere is that clearer than in SaaS, where too much weight gets put on annual recurring revenue instead of what really moves valuation: net revenue retention (NRR).
Why NRR Matters More Than ARR
Net revenue retention measures what happens after the initial sale: do customers stay, expand, or shrink?
An NRR above 120% signals a sticky product that expands naturally inside accounts.
Flat or negative NRR (say, under 100%) means new sales are just covering up churn.
And investors notice.
Bessemer Venture Partners, in its Cloud 100 benchmarks, highlights that companies with NRR over 120% consistently command premium revenue multiples. On the flip side, businesses with NRR closer to 100% often see multiples compressed, no matter how fast they’re adding logos.
The BVP Nasdaq Emerging Cloud Index shows this dynamic in public markets too: high-retention firms (think Snowflake, Datadog) trade at multiples 2–3x higher than peers with weaker expansion.
Why CEOs Miss This Blind Spot
When I sit down with SaaS founders, many are laser-focused on top-line growth. They’ll spend heavily on new customer acquisition, then quietly accept churn as “the cost of doing business.”
But this creates fragile economics. If you lose 20% of your base each year, you need to run twice as hard to stand still. It’s exhausting, and it caps valuation because investors see the treadmill.
This is what I call a void in financial leadership—the CFO or finance function tracks ARR and bookings but doesn’t surface the retention dynamics clearly enough for the CEO to act.
How to Improve NRR
The good news? Shifting NRR isn’t magic. It’s about discipline and focus:
Measure Cohorts Clearly. Don’t just track gross churn. Look at expansion, contraction, and net effect by cohort.
Tie Success to Revenue. Make customer success accountable for revenue growth, not just satisfaction scores.
Install “Give/Get” Rules. Discounts for renewals should come with commitments—longer terms, upsells, or multi-year agreements.
Flag At-Risk Accounts Early. A 12-week cash forecast isn’t the only radar you need; a renewal radar is just as important.
One $15M SaaS firm we worked with was running flat at ~101% NRR. After building a retention-focused dashboard and tying success comp to expansion, they pushed to 114% within a year. Their valuation multiple moved from 5.5x ARR to over 8x when they went to market.
What Investors Actually Reward
Investors aren’t just buying your current revenue. They’re buying confidence that next year’s revenue will be larger without you spending a fortune to replace what’s lost.
That’s why retention drives multiples. In the Cloud 100, median ARR growth may hover around 50%, but the firms that stand out all have NRR north of 120%. Predictability + expansion = premium value.
Final Thought
If you’re leading a SaaS or subscription company, stop thinking ARR is the endgame. It’s just the entry ticket. What really sets you apart is whether customers not only stay, but buy more.
Get your NRR right, and your ARR will take care of itself—and investors will pay you a premium for the confidence that your growth is durable.
👉 Get a valuation-driver map in our Strategic Scale program. We’ll help you benchmark your NRR, surface blind spots, and build the systems that make your growth not just bigger, but stronger.
