Net dollar retention is a metric used to measure the growth of a company's revenue from its existing customer base. NDR is a calculation of the amount of money a company is able to retain from its existing customers over a period of time.
The net dollar retention formula is:
Net dollar retention = (Revenue from existing customers in current period – Revenue lost from churned customers) / Revenue from existing customers in the previous period
It's important to note that the formula to calculate NDR rate can vary depending on the company and the way the revenue data is collected. For example, monthly subscription models vs multi-year contracts. A net dollar retention rate of 100% or higher indicates that a company is not only fully retaining its revenue from customers, it is actually growing that revenue through upsells or expanded product usage.
An NDR rate less than 100% indicates that the company is losing recurring revenue from its existing customer base and would be a sign that product, services, or sales practices need improvement. Customer churn also plays a role as the loss of accounts will significantly impact NDR.
