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Definition

TTM Net Retention (Trailing Twelve Months Net Retention) measures how much Annual Recurring Revenue (ARR) your existing customer base generates over a 12-month period, expressed as a percentage of the starting ARR. The calculation takes two points in time exactly 12 months apart (for example, June 2025 compared to June 2024) and computes the ratio: 
TTM Net Retention = (BOP + Delta) / BOP
Where:
  • BOP (Beginning of Period) = ARR from customers who were active 12 months ago
  • Delta = Total ARR gained or lost by those same customers over the 12-month period
Key principle: Delta includes all ARR movements (upsells, downsells, churns) from customers who were present at the beginning of the period.

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Example: Exact Method

Here’s how exact TTM Net Retention works with a clear example:
CustomerJune 2024 (Start)June 2025 (End)ARR ChangeIncluded?
A$100$150+$50 upsell✅ Yes
B$100$100$0 stable✅ Yes
C$100$80-$20 downsell✅ Yes
D$100$0-$100 churn✅ Yes
E(joined Jan 2025)$120+$120 new❌ No
Totals$400$450
Calculation: 
BOP (A, B, C, D only) = $400
Delta (A, B, C, D movements) = +$50 + $0 - $20 - $100 = -$70
TTM Net Retention = ($400 - $70) / $400 = $330 / $400 = 82.5%
Customer E’s $120 is excluded — they weren’t present in June 2024, so they don’t factor into retention of the original cohort.

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Approximate Method vs. Exact Method

Some analysts use an approximate method based on monthly waterfall data. While convenient, this can create significant biases.

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The Core Problem

What Goes Wrong

The approximate method includes movements from ALL customers, even those who joined during the measurement period. This contaminates a metric that should only track the original cohort.

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Example 1: New Customer Makes Retention Look Better Than Reality

CustomerJune 2024ActivityJune 2025Movement in Waterfall
A$100Stable$100$0
B$100Stable$100$0
C(new July)Joined + Upsold$300+200new++200 new + +100 upsell
Monthly Waterfall Summary:
  • New ARR: +$200 (Customer C)
  • Upsell: +$100 (Customer C)
  • Total movements: +$300
Approximate Method: 
($200 + $300) / $200 = 250% 🚨 Impossibly high!
Exact Method: 
Delta for A + B: $0
($200 + $0) / $200 = 100% ✅ Correct — no change in original cohort
The approximate method shows 250% retention when the actual cohort had 100% retention. Customer C’s activity inflated a metric meant only for A and B.

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Example 2: New Customer Makes Retention Look Worse Than Reality

CustomerJune 2024ActivityJune 2025Movement in Waterfall
A$100Upsold$120+$20
B$100Stable$100$0
C(new July)Joined then churned$0+200new,−200 new, -200 churn
Monthly Waterfall Summary:
  • New ARR: +$200 (Customer C)
  • Upsell: +$20 (Customer A)
  • Churn: -$200 (Customer C)
  • Net movements: +$20
Approximate Method: 
($200 + $20) / $200 = 110%
Exact Method: 
Delta for A + B: +$20 + $0 = +$20
($200 + $20) / $200 = 110% ✅
In this case, they match because Customer C’s new ARR and churn cancel out. But this is coincidental — the approximate method is still tracking the wrong customers.

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Example 3: The Pessimistic Bias from New Customer Downsells

CustomerJune 2024ActivityJune 2025Movement in Waterfall
A$100Stable$100$0
B$100Stable$100$0
C(new July)Joined, then downsold$150+200new,−200 new, -50 downsell
Monthly Waterfall Summary:
  • New ARR: +$200 (Customer C)
  • Downsell: -$50 (Customer C)
  • Net movements: +$150
Approximate Method: 
($200 + $150) / $200 = 175% 🚨 Impossibly high for a cohort!
Exact Method: 
Delta for A + B: $0
($200 + $0) / $200 = 100% ✅

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Visual Summary

Exact Method ✅

  • Tracks only original cohort
  • Excludes new customer noise
  • Accurate retention measure
  • Always use this

Approximate Method ⚠️

  • Includes all customer movements
  • Contaminated by new customers
  • Can be wildly misleading
  • Avoid for accuracy

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When Approximate Method Works

The approximate method gives acceptable results only in specific scenarios:
  • Minimal new customer acquisition during period
  • Most ARR movements from existing customers
  • New customer activity is negligible
Example: Established SaaS with 1,000 customers, adding only 10 new customers per year
  • Significant new customer acquisition
  • New customers have large ARR movements
  • Growth or transition phase
Risk: Approximate method will be unpredictably biased (higher or lower depending on new customer behavior)

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Recommendation

Always Use the Exact Method

For accurate TTM Net Retention, always use the exact method:
  1. ✅ Identify customers active 12 months ago
  2. ✅ Track only their ARR movements
  3. ✅ Exclude movements from customers who joined during the period
This ensures your retention metrics truly reflect existing customer behavior, not noise from new customer activity.