What is Net Dollar Retention (NDR)?

Net Dollar Retention (NDR) is a key performance indicator (KPI) that measures the percentage of revenue retained from existing customers over a specific period, accounting for expansions (upsells and cross-sells), contractions (downgrades), and customer churn. 

A high NDR indicates that your business is not only retaining customers but also generating additional revenue through expanded usage or upgraded services. In contrast, a lower NDR suggests potential challenges with customer retention or product satisfaction.

NDR is expressed as a percentage:

• NDR > 100%: Revenue growth from existing customers (excellent retention and expansion).

• NDR = 100%: Stable revenue (customers retained, but little expansion).

• NDR < 100%: Revenue loss due to churn or downgrades.

For businesses focusing on scalable, predictable growth, NDR is an essential measure of financial health and customer loyalty.

Net Dollar Retention Calculation

The net dollar retention calculation is straightforward but highly insightful. Here’s the formula.

Here’s the formula:

NDR = [(Starting MRR + Expansion Revenue − Contraction Revenue − Churned Revenue) ÷ Starting MRR] × 100

Components Explained

• Starting MRR: Monthly Recurring Revenue at the beginning of the period.

• Expansion Revenue: Additional revenue from existing customers due to upsells, cross-sells, or upgrades.

• Contraction Revenue: Revenue lost when customers downgrade services.

• Churned Revenue: Revenue lost when customers cancel or do not renew.

Example

If your business starts a month with $100,000 in recurring revenue, gains $20,000 from expansions, loses $5,000 to downgrades, and experiences $10,000 in churn, your NDR calculation would look like this:

NDR = [(100,000 + 20,000 − 5,000 − 10,000) ÷ 100,000] × 100 = 105%

This NDR of 105% means that despite churn and downgrades, your business grew its revenue by 5% from its existing customer base—an excellent indicator of customer satisfaction and effective upselling strategies.