What is it?

Net Dollar Retention (NDR) measures how much revenue a company retains and grows from its existing customers over a year. It reflects the company’s ability to expand revenue within its customer base and is a vital indicator of customer satisfaction, loyalty, and long-term growth potential.

How is it calculated?

NDR is calculated using four key metrics:

1. Starting Gross Revenue: the revenue from your existing customers at the start of the period.
2. Upgrades: additional revenue from upsells and expansions within the customer base during the period.
3. Downgrades: revenue lost from customers reducing their spending or switching to lower-tier plans.
4. Churn: revenue lost due to customers leaving during the period.

An NDR above 100% indicates that revenue growth from upgrades outweighs losses from churn and downgrades, signifying effective upselling and customer retention strategies.

What does it tell me about my company?

Net Dollar Retention provides a focused view of your company’s ability to sustain and grow revenue without relying solely on acquiring new customers. It offers insights into several critical aspects of your business:

1. Customer retention and loyalty: a high NDR means customers value your product and are investing more in it, indicating strong loyalty and satisfaction. A low NDR might signal product issues or service challenges that need addressing.
2. Revenue resilience: an NDR over 100% shows your revenue is growing even with some customer churn, thanks to upselling or cross-selling. An NDR below 100% signals revenue leakage, which could hurt your financial health.
3. Product-market fit: a strong NDR suggests your product meets or exceeds customer needs, with growing value over time.
4. Efficient growth: A high NDR demonstrates growth driven by your existing customers, reducing reliance on costly new customer acquisition.
5. Scalability and profitability: retaining and expanding existing customers is more cost-effective than acquiring new ones. A scalable business model with a high NDR leads to sustainable long-term profitability.

What are the underlying data sources?

The NDR is based on revenue and customer data.