Definition of Net Dollar Retention (NDR)
Net Dollar Retention (NDR), also known as Net Revenue Retention, measures how much recurring revenue a company retains and expands from its existing customers over a defined period, typically one year. It accounts for churn, downgrades, and expansions within the same customer base and is expressed as a percentage of starting revenue.
How Net Dollar Retention Is Calculated
NDR is calculated by taking starting recurring revenue from existing customers, adding expansion revenue, subtracting churn and contraction, and dividing the result by the starting revenue. An NDR above 100% indicates that revenue from existing customers grew overall, while an NDR below 100% means it declined.
Example of Net Dollar Retention
If a company starts the year with $1 million in ARR from existing customers, loses $100,000 due to churn or downsells, but gains $300,000 from upsells or usage expansion, the NDR would be 120%. This shows strong growth within the existing customer base despite some losses.
Net Dollar Retention Explained for a General Audience
For a general audience, NDR answers a simple question: are the same customers paying you more or less over time? If customers stay, upgrade, and spend more, NDR increases. If customers leave or downgrade faster than others expand, NDR drops. An NDR above 100% means existing customers are collectively spending more than before.
Why Net Dollar Retention Is Important
Net Dollar Retention is one of the most important metrics in SaaS and subscription businesses because it reflects customer satisfaction, product value, and expansion potential. High NDR means a company can grow even without adding new customers, while low NDR forces the business to constantly replace lost revenue.
Drivers of Net Dollar Retention
NDR is influenced by churn, downsells, upsells, cross-sells, seat expansions, usage growth, and price increases. Strong customer success, effective account management, and products that scale with customer needs all contribute to higher net retention.
Net Dollar Retention by Customer Segment
NDR often varies by segment. Enterprise-focused SaaS companies frequently report NDR above 120% because large customers tend to expand over time. SMB-focused businesses may see lower NDR due to higher churn and limited expansion potential.
Why Investors Care About NDR
Investors closely watch NDR because it signals product stickiness and long-term growth efficiency. A high NDR indicates a strong land-and-expand motion and reduces reliance on new customer acquisition. Low NDR can be a red flag, even if top-line growth appears strong.
Net Dollar Retention in Ratio’s Context
While Ratio does not explicitly market NDR as a metric, its solutions can indirectly improve it. By reducing churn through flexible payment options and streamlining renewals and upsells, Ratio helps minimize revenue losses. By enabling faster add-ons and expansions through embedded financing, Ratio can increase expansion revenue from existing customers.
Why Net Dollar Retention Matters in a Glossary Context
Including NDR in a glossary helps explain a core metric used to evaluate SaaS health, growth quality, and investor attractiveness. Understanding NDR provides context for discussions around retention, expansion, and sustainable growth.
Summary
Net Dollar Retention measures whether revenue from existing customers is growing or shrinking over time. An NDR above 100% indicates strong expansion that outweighs churn, while an NDR below 100% signals revenue leakage. High NDR is a hallmark of successful SaaS companies and reflects strong customer value, retention, and expansion strategies.
