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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, these indicators help investors assess revenue durability—but they do not measure a stock’s risk or value on their own.
What recurring revenue and ARR tell investors
Recurring revenue comes from subscriptions or other repeatable contractual services. A larger recurring share can make revenue less dependent on one-time sales, but the label is not standardized: companies may count different combinations of subscriptions, maintenance, term licenses, usage-linked revenue, or managed services. Check the issuer’s definition rather than comparing percentages at face value. Box’s FY2026 Form 10-K and Freshworks’ FY2025 filing illustrate that definitions can vary.
Annual recurring revenue (ARR) is generally an annualized, point-in-time operating measure—not necessarily revenue recognized under GAAP during the period. It can help show the scale and direction of contracted recurring activity, but it depends on company-specific assumptions and may exclude non-recurring items. For example, Box defines total ARR using annualized recurring revenue from active customer contracts; RingCentral annualizes monthly recurring subscriptions; and Freshworks includes expected subscription, software-license, and maintenance revenue over the next 12 months under assumptions described in its filing. RingCentral’s filing and Commvault’s filing provide further examples of issuer-specific ARR methods.
How retention measures work
Net revenue retention
Net revenue retention (NRR), also called net dollar retention (NDR), follows a group of customers from an earlier period and compares their revenue or ARR with what the same customers generate later. Expansion—such as additional users or products—can offset contraction and churn. Box, for example, compares the same cohort’s ARR across 12 months. Freshworks describes NRR as capturing expansion in users and products, offset by churn and contraction. PagerDuty’s FY2026 filing also describes a customer-based ARR churn measure, underscoring why the precise formula matters.
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An NRR above 100% means the cohort grew in aggregate over the measured period; it does not mean every customer expanded or that no customers left. Expansion among some accounts can mask losses elsewhere.
Gross revenue retention
Gross revenue retention (GRR) asks a narrower question: how much existing revenue remained before counting expansion. Vertex’s GRR excludes add-ons and net expansion, while accounting for customer departures and downgrades. GRR can therefore reveal erosion that a strong NRR might conceal. Vertex’s FY2025 filing explains its approach.
Churn
Churn may refer to lost customers, lost revenue, or ARR no longer contributed by customers who were active in a comparison period. These are not interchangeable. PagerDuty defines ARR churn around revenue from customers contributing in the equivalent prior-year period but no longer contributing at the current period end. Investors should confirm whether a company reports customer-count churn, revenue churn, ARR churn, or another measure, and note the period used.
What these indicators can—and cannot—say about risk
Stable recurring revenue and retention can support a view that a company has a durable revenue base. Deteriorating retention, higher churn, contraction, or dependence on a few customers can raise questions about future growth and resilience. But these are operating indicators, not standalone measures of share-price risk, valuation, or future returns.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsA recurring-revenue share does not show profit margins, renewal timing, contract enforceability, customer health, cash collection, competitive strength, or whether the market price already reflects expected growth. ARR is not a substitute for reported revenue or cash flow. Read the company’s financial statements and risk factors alongside these operating measures.
Examples from company filings
The figures below illustrate how individual issuers report these measures; they are not benchmarks for a “safe” software stock.
| Company and measure | Reported figure | Period and context |
|---|---|---|
| Bentley Systems, recurring revenue share | 93% and 92% of revenue | Twelve months ended March 31, 2026 and March 31, 2025, respectively, as reported in Bentley Systems’ 2026 first-quarter filing. The company said its recurring-revenue retention rate helps explain revenue performance as growth from existing accounts. Filing |
| Vertex, NRR | 105%, compared with 109% a year earlier | As of December 31, 2025 and December 31, 2024, respectively. Vertex attributed the decline largely to slower growth of customer entitlements, slightly higher attrition, and delayed activity for some large multinational customers. FY2025 filing |
| PagerDuty, ARR churn | Less than 10% of beginning ARR | Fiscal year ended January 31, 2026. This is the company’s defined ARR churn measure, not necessarily customer-count churn. FY2026 filing |
| PagerDuty, customer concentration | Top ten customers contributed approximately 2% of revenue; no single customer contributed more than 10% | Fiscal year ended January 31, 2026. Concentration is separate context from churn. FY2026 filing |
Retention can change for different reasons, so a declining figure needs explanation. Vertex pointed to slower customer entitlement growth, slightly higher attrition, and delayed activity at some large multinational customers. Box’s prior filing cited customer budget scrutiny, pressure on seat expansion, and partial churn. These examples show why the trend and its drivers matter more than a single isolated percentage. Box’s prior filing
A practical way to compare software companies
- Check revenue composition. Find the share described as recurring and read exactly what the issuer includes. A subscription-heavy business and one counting maintenance or other revenue may not be directly comparable.
- Identify the retention measure. Determine whether the figure is NRR, NDR, GRR, account retention, or another issuer-defined metric. Check which customers, revenue streams, and contract types are included.
- Trace the trend and its causes. Compare periods and look for explanations involving expansion, churn, seat reductions, pricing, usage, customer budgets, or delayed deals.
- Review concentration separately. Assess how much revenue depends on a small number of customers; a retention figure alone does not disclose that exposure.
- Check cohort and timing. Establish whether the calculation uses a trailing 12-month cohort, an annual point-in-time ARR comparison, or a monthly measure.
- Read the financial context. Compare operating metrics with recognized revenue, margins, cash flow, risk factors, renewal timing, and valuation.
Why comparisons require care
ARR, NRR, and GRR are not standardized GAAP measures across issuers. Definitions can differ in customer population, contract types, measurement period, foreign-exchange treatment, and whether pricing changes or usage are included. Box describes its retention rate as an operational metric with no comparable GAAP measure. A percentage is most useful when considered alongside its issuer’s formula and its own history, rather than treated as directly comparable across every company.
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