Recurring revenue can make a software company’s revenue base more visible, while customer-retention measures show whether existing customers are staying, spending less, or expanding. Together, they help investors assess revenue durability and business risk—but neither is a standalone measure of stock-price risk or valuation, and neither guarantees future performance.
What recurring revenue and ARR tell investors
Recurring revenue comes from subscriptions or other repeatable contractual services. A larger recurring-revenue share can make future revenue easier to assess than a business dependent mainly on one-off sales, but the label is not uniform: companies may count different combinations of subscriptions, maintenance, licenses, usage-linked revenue, or managed services.
As an Amazon Associate I earn from qualifying purchases.
Annual recurring revenue (ARR) is generally an annualized, point-in-time operating measure—not necessarily the revenue recognized under accounting rules during the period. It can help show the scale and direction of contracted recurring activity, but it depends on the issuer’s definition and may exclude non-recurring items. Commvault, for example, describes its ARR variants as excluding non-recurring elements (SEC filings).
Company definitions illustrate why the label needs checking. Box defines total ARR using annualized recurring revenue from active customer contracts; RingCentral annualizes monthly recurring subscriptions; Freshworks includes expected subscription, software-license, and maintenance revenue over the next 12 months under assumptions described in its filing. These measures are not interchangeable.
#1 Best Overall
How retention measures differ
Net revenue retention: the cohort after expansion and losses
Net revenue retention (NRR), also called net dollar retention (NDR), compares revenue or ARR from a group of customers present in an earlier period with revenue or ARR from those same customers later. Expansion—such as additional users or products—can offset contraction and churn. Box calculates the measure by dividing current cohort ARR by that cohort’s ARR 12 months earlier; Freshworks says its NRR reflects expansion in users and products offset by churn and contraction.
An NRR above 100% means the cohort grew in aggregate over the measurement period. It does not mean every customer expanded: some can leave or spend less while other customers expand enough to offset those losses.
Gross revenue retention: keeping revenue before expansion
Gross revenue retention (GRR) measures how much existing revenue remains before counting expansion. Vertex’s definition accounts for customer departures and downgrades but excludes add-ons and net expansion, including added licenses, migrations, and price or usage expansion. GRR can therefore reveal underlying losses that a strong NRR might mask.
What’s actually slowing this PC down?
Pick the symptom - the matching free tool is one click away.
Churn: check what is being counted
“Churn” can refer to customers, revenue, or ARR, and its period and calculation vary. PagerDuty defines ARR churn around revenue from customers that contributed in the equivalent prior-year period but no longer contributed at the current period end. That is not automatically the same as customer-count churn.
What the measures can—and cannot—say about risk
Stable recurring revenue and retention can support a stronger view of revenue durability: the company appears to retain customers and repeat business. Deteriorating retention, rising churn, or contraction can raise concerns about future growth and resilience. However, these are indicators of the operating business, not direct measures of a share’s risk or fair value.
- Recurring-revenue share: Indicates how much reported revenue comes from repeatable sources, subject to the issuer’s definition. It does not establish renewal certainty or contract enforceability.
- NRR: Shows the net change in revenue from an existing cohort, combining expansion with losses. A high result can conceal churn or contraction among some customers.
- GRR: Focuses on revenue retained before expansion and can help expose underlying customer losses.
- Churn and concentration: Add different kinds of context. Customer departures affect retention; dependence on a small number of customers creates separate exposure.
None of these measures alone reveals margins, cash collection, renewal timing, customer health, competitive strength, or the valuation investors are paying. Read the company’s financial statements and risk factors alongside its operating metrics rather than treating ARR or retention as a stock-picking formula.
Why retention can change
A declining retention rate can reflect different causes, so the rate alone does not explain what is happening. Vertex attributed its lower NRR to slower growth in customer entitlements, slightly higher attrition, and delayed activity among some large multinational customers. Box’s prior filing cited budget scrutiny, pressure on seat expansion, and partial churn.
Those explanations point to different concerns: customers may be reducing usage or seats, delaying purchases, leaving, or simply expanding more slowly. Read management’s explanation and compare it with the trend in other reported measures instead of assuming one cause.
Best Value
- Income And Expense Log Book: This Income and Expense Record Book（8.5" x 10.5"） is a necessary item for any small business owner or entrepreneur. It is an essential part of any business - helping you understand your overall earnings to determine if you are profitable.
- Daily Tracking and Weekly Overview: let our log tell you if you are profitable today! There are two pages per week to help you you track your income and expenses. At the end of each day or week, you can note whether you made a profit or a loss for the day.
- Clear P&L Statement For Your Business: This income and expense book makes it easy to see your expenses and how they fluctuate from time to time. This makes it easy for you to decide where you can cut back on expenses and assess your total annual net profit.
- Main Features: Expense Review + Income Review + Weekly Pages + Summary of The Year + Twin-Wire Binding + Waterproof Cover + Rounded corner design + Thicker paper
- Effective Organization: This budget book has a twin-wire binding and you can easily lay it flat at 180°. This effective design can help you work better and bring you great convenience in the process of using.
Examples from company filings—not safety benchmarks
| Company | Reported measure | What it illustrates |
|---|---|---|
| Bentley Systems | 93% and 92% of revenue was recurring for the 12 months ended March 31, 2026 and 2025, respectively, as reported in its 2026 first-quarter filing. | The company also said recurring-revenue retention helps explain revenue performance as growth from existing accounts. |
| PagerDuty | ARR churn was less than 10% of beginning ARR for the fiscal year ended January 31, 2026. | For the same fiscal year, its ten largest customers contributed approximately 2% of revenue, and no single customer represented more than 10%. |
| Vertex | NRR was 105% as of December 31, 2025, versus 109% as of December 31, 2024. | The company linked the decline largely to slower growth of customer entitlements, slightly higher attrition, and delayed deal activity among some large multinational customers. |
These are company-specific disclosures, not targets for what a “safe” software stock should report. Differences in business model, customer base, measurement method, and reporting period make simple rankings unreliable.
How to compare software companies fairly
- Check revenue composition. Find the recurring-revenue share, then inspect what the issuer includes—such as maintenance, term licenses, usage, or managed services.
- Identify the exact retention metric. Confirm whether the company reports NRR, NDR, GRR, account retention, or another measure, and which customers and revenue streams are included.
- Follow the trend and its drivers. Look for changes in expansion, churn, seat contraction, pricing, usage, or customer budgets, and compare management’s explanation with the reported results.
- Assess customer concentration separately. A company can have recurring contracts yet still depend heavily on a few customers. Review concentration disclosures alongside churn.
- Align the cohort and timing. A trailing 12-month cohort comparison is not necessarily comparable with an annual point-in-time ARR measure or a monthly metric.
Why these figures are not directly comparable
ARR and retention are operating measures whose definitions are not standardized GAAP measures across issuers. Box specifically describes its retention rate as an operational metric with no comparable GAAP measure. Companies can differ in customer population, contract types, measurement period, foreign-exchange treatment, and whether price changes or usage are included.
When a company reports a change, compare it with that same company’s earlier results and read its methodology. Do not assume that two similarly named percentages use the same cohort, formula, or accounting treatment.
Free tools Windows power users keep installed
One-click scans. No signup required.
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
