How to calculate gross retention vs net retention?

Gross retention and net retention are key metrics for evaluating customer retention and revenue in a product.

• Gross Retention shows the percentage of revenue or customers retained over a period without considering expansion or growth. That is, only those who remained are counted, without new sales or upsells.

• Net Retention considers not only retention but also growth from existing customers (e.g., upsells, cross-sells). This metric shows how revenue from the current customer base has changed, accounting for losses and gains.

Example of calculation:

If at the beginning of the period, revenue from customers was $100,000:

• At the end of the period, revenue from the same customers (without new sales) is $80,000 (considering churn).
• Additionally, revenue of $30,000 was obtained from these customers through upsells.

Then:

• Gross Retention = 80,000 / 100,000 = 80%
• Net Retention = (80,000 + 30,000) / 100,000 = 110%

Net retention above 100% means that growth from existing customers offsets losses and even exceeds them.