What is Net Dollar Retention?

Net Dollar Retention (NDR) is a key performance metric for subscription-based businesses, particularly in the SaaS (Software as a Service) industry. It measures the percentage of recurring revenue retained from existing customers over a specific period, accounting for expansions, contractions, and churn. NDR provides a comprehensive view of customer revenue health and is crucial for assessing growth potential and customer satisfaction.

To calculate NDR, businesses follow these steps:

Start with the total recurring revenue from existing customers at the beginning of the period. Add any revenue gained from upsells, cross-sells, or expansions within the customer base. Subtract revenue lost due to downgrades, contractions, or customer churn. Divide the result by the total recurring revenue at the beginning of the period and multiply by 100 to get the percentage.

An NDR of over 100% indicates that the business is expanding revenue from its existing customer base, even after accounting for churn. This is a positive sign of growth and customer satisfaction. Conversely, an NDR below 100% suggests that the company is losing more revenue than it is gaining from its existing customers, which could indicate issues with customer retention or product value.

Tracking NDR helps businesses identify trends in customer behavior and the effectiveness of their retention strategies. By focusing on increasing upsells and reducing churn, companies can improve their NDR and drive sustainable growth.