Net Dollar Retention
Measures the revenue growth or contraction from existing customers over a specific period, usually a year. It reflects how well a company retains and expands revenue from its customer base, factoring in upsells, cross-sells, downgrades, and churn.
Scenario:
At the start of the year, Acme has $1,000,000 in Annual Recurring Revenue (ARR) from its existing customers.
Throughout the year:
Upsells (Expansions):Â Acme successfully upsells additional services to some customers, adding $200,000 in ARR.
Downgrades:Â A few customers reduce their subscriptions, resulting in a loss of $50,000 in ARR.
Churn:Â Some customers cancel their subscriptions altogether, accounting for a loss of $100,000 in ARR.
Calculation:
((1,000,000+200,000−50,000−100,0001,000,000)/1,000,000) * 100 =105%
Acme’s NDR of 105% indicates that it has grown its revenue from the existing customer base by 5% over the year. This positive NDR shows that expansions outweighed downgrades and churn, which is a strong indicator of healthy customer relationships and Acme’s ability to extract additional value from its customer base.
NDR=((Beginning ARR + Upgrades (Expansions) - Downgrades - Churn)/Beginning ARR)​×100