Gross vs Net Retention
Net retention can hit 120% while the product is bleeding customers. Expansion isn’t loyalty.
The formula
Gross retention = (Starting revenue − Churned revenue − Contraction revenue) ÷ Starting revenue
Net retention = (Starting revenue − Churned revenue − Contraction revenue + Expansion revenue) ÷ Starting revenue
Gross retention measures what you kept. Net retention measures what you kept plus what you grew. The difference between them is expansion — upsells, cross-sells, price increases, seat additions.
What gross retention measures
Gross retention answers a simple question: of the revenue you started with, how much did you keep?
A cohort that started at £100k and retained £90k has 90% gross retention. You lost £10k to churn and contraction. This is the floor — the minimum you’ll retain before any expansion.
For B2B SaaS, 85-90% gross retention is acceptable. Above 90% is strong. Below 85% suggests a retention problem that expansion is papering over.
What net retention measures
Net retention adds expansion back in. That same cohort might have £90k retained plus £20k expansion, giving you £110k — net retention of 110%.
Net retention above 100% means the cohort is growing without adding new customers. Your existing customers are worth more each year. This is the compounding engine that makes some SaaS businesses so valuable.
Elite B2B SaaS companies post 120-140% net retention. They lose some customers, but the ones who stay spend dramatically more over time.
What the gap hides
The spread between gross and net retention reveals dependence on expansion.
Consider two businesses, both showing 110% net retention. The first has 95% gross — keeping almost everyone, growing them modestly. Healthy. The second has 75% gross — losing a quarter of revenue annually but replacing it with expansion from survivors. The net number looks identical; the businesses are fundamentally different.
The second is fragile. Expansion has to work every year just to stand still. If upsell capacity saturates, or the customers willing to expand are the same ones at risk of churning, the whole structure collapses. The question is whether expansion is organic growth from a healthy base, or a treadmill compensating for a leaky bucket.
Where it breaks down
Price increases as expansion. If net retention is inflated by price rises rather than genuine seat growth or upsells, it tells you less about product value. Customers might accept a 10% price increase this year while quietly evaluating alternatives. The expansion revenue is real but the loyalty is borrowed.
Large customer concentration. A single large customer expanding significantly can mask churn across the rest of the base. Net retention of 115% might be one account growing 50% while ten others churned. The aggregate looks healthy; the pattern doesn’t.
Cohort mixing. Retention metrics calculated across all customers blend different vintages. A mature cohort that’s fully expanded will behave differently from a new cohort with expansion headroom. The blended number can obscure whether recent cohorts are retaining as well as early ones.
Seasonality and timing. Expansion often clusters around renewal dates or budget cycles. A Q4 snapshot might look dramatically different from Q2. Annual calculations smooth this out but can hide quarterly volatility that matters for cash planning.
The decision it enables
Gross retention tells you whether you have a retention problem. Net retention tells you whether expansion is compensating for it.
If gross retention is strong (above 90%), focus on expansion — you’re keeping customers, now grow them.
If gross retention is weak (below 85%), fix the leak before optimising expansion. No amount of upselling compensates for a product that customers don’t want to keep.
The trap is celebrating net retention while ignoring gross. A 115% net retention number can make a 75% gross retention problem invisible until expansion headroom runs out.
The metric series: Part of a series on metrics that reveal what headline numbers hide.