Net Dollar Retention

Written by Kelly Bailey

Reviewed by Jeff Schmidt

Read Time 4 minutes

What is Net Dollar Retention (NDR)?

Net Dollar Retention (NDR) is a financial metric that tracks how much recurring revenue a company retains from its existing customers over a given period. NDR takes into account any upgrades (expansions), downgrades (contractions), and churn (lost customers or canceled subscriptions).

For SaaS and subscription-based businesses, net dollar retention indicates how much value customers see in a company’s product and how effectively the company grows revenue from existing customers. Net dollar retention is also referred to as net revenue retention (NRR).

Key Highlights

Net dollar retention (NDR) shows how much recurring revenue a company keeps and expands from existing customers in a monthly period.

In the SaaS industry, net dollar retention is a critical metric for assessing customer satisfaction, product value, and long-term profitability.

By comparing starting recurring revenue with revenue after expansions and losses, NDR reveals whether growth from upsells outweighs customer churn.

Net Dollar Retention

How to Calculate NDR

The calculation for net dollar retention measures the percentage of monthly recurring revenue (MRR) at the start of a period, with the revenue remaining after upgrades, downgrades, and churn (losses).

Net Dollar Retention Formula

The formula to calculate Net Dollar Retention is:

NDR (%) = [(Starting MRR + Expansion MRR – Contraction – Churned MRR) / Starting MRR] × 100

Where:

Starting MRR is the total recurring revenue at the beginning of a month. For example, if you start January with 100 customers each paying $1,000 monthly, the starting MRR is $100,000.
Expansion MRR refers to additional revenue from existing customers (upsells or cross-sells).
Contraction is revenue lost when customers switch to lower-priced plans. If five customers downgrade from $1,000 to $800 monthly plans, the contraction equals $1,000 ($200 × 5 customers).
Churn is revenue lost from customers who cancel their subscriptions entirely. If three customers paying $1,000 monthly cancel, the churned revenue is $3,000.

Example Calculation

Suppose you are a financial analyst with a fast-growing SaaS company, and one of your responsibilities is tracking net dollar retention. Here are the revenue figures you need to calculate NDR:

Starting MRR: $100,000
Expansion Revenue: $20,000
Downgrade Revenue: $5,000 (customers switching to lower-priced plans)
Churned Revenue: $5,000 (canceled plans)

Using the NDR formula, you perform the following calculation.

NDR = [($100,000 + $20,000 – $5,000 – $5,000) / $100,000] × 100 = 110%

NDR = 110%

Interpretation: An NDR above 100% indicates that expansion revenue more than offsets downgrades and churn. A 110% NDR means that revenue from existing customers grew by 10% even after factoring in downgrades and for churn.

What is a Good NDR?

As in the previous example, an NDR above 100% means that monthly recurring revenue has grown due to expansion revenue outweighing any losses. An NDR below 100% means the company’s revenue from existing customers has contracted or lost more revenue from churn/downgrades than it gained.

A strong NDR indicates customers find ongoing value in the product (leading to upsells and fewer cancellations), while a weak NDR could signal customer dissatisfaction and churn. Ultimately, what qualifies as a “good” NDR depends on factors like company size, customer profile, and industry segment.

What is the Difference Between NDR and GRR?

Gross Revenue Retention (GRR) and Net Dollar Retention (NRR) both measure the percent of revenue retained from existing customers in a period but from different perspectives. GRR focuses on revenue retained excluding expansion revenue. NDR measures retained and expansion revenue less revenue lost to downgrades and churn.

The table below compares NRR and GRR across their key features and applications.

Gross Revenue Retention vs. Net Dollar Retention: Side-by-Side Comparison

Aspect	Gross Revenue Retention (GRR)	Net Dollar Retention (NDR)
Definition	% of starting recurring revenue retained at period-end after subtracting revenue lost from churn or downgrades. Excludes expansion revenue.	% of starting recurring revenue retained after accounting for churn/downgrades and upsells/expansions. Includes expansion revenue.
Formula	GRR = (Starting Revenue – Contraction – Churn) ÷ Starting Revenue	NDR = (Starting Revenue + Expansion – Contraction – Churn) ÷ Starting Revenue
Example	Start with $100 → lose $5 to churn/downgrades = 95% GRR	Start with $100 → retain $95 + $15 upsells = $110 = 110% NDR
Range	Maximum is 100% (cannot exceed, since upsells aren’t counted).	Can be greater than 100% if expansions outweigh losses.
Focus	How well the business protected existing revenue by limiting churn and downgrades.	How well the business both protected existing revenue AND grew that revenue.
What It Shows	Pure indicator of churn risk and customer stickiness.	Captures full picture of revenue evolution from existing customers.
Use Cases	Reveals retention quality and underlying churn trends.	Demonstrates ability to offset churn through upsells and cross-sells.
Investor View	Low GRR is a red flag even if NDR looks high (churn may be masked by upsells).	High NDR is attractive, but investors also check GRR to confirm churn isn’t hidden.
Relationship	Always ≤ NDR (equal only when there’s no expansion revenue).	Always ≥ GRR (can surpass 100%).

Why Does Net Dollar Retention Matter in SaaS?

Retention and expansion of existing customers are critical to the SaaS business model. There are several key reasons that SaaS analysts, investors, and finance teams closely monitor NDR:

Growth Efficiency and Profitability: SaaS companies with high NDR can grow revenues organically without relying solely on new customer acquisition. Expansion revenue is often more profitable since the cost of sales, marketing, and onboarding are usually less than the cost of finding new clients.
Indicator of Customer Satisfaction & Product-Market Fit: NDR is often seen as a proxy for how much customers value the product. If customers renew and expand their usage (leading to NDR > 100%), it signals the product is delivering significant value and perhaps even becoming more indispensable over time.
Valuation and Investor Appeal: NDR is highly correlated with company valuation in the SaaS industry. McKinsey research indicates net dollar retention (alongside revenue growth rate) is among the top drivers of SaaS company valuation multiples.

NDR captures the lifeblood of the SaaS model: customer satisfaction and increased lifetime value. A high NDR reflects a company that is maximizing the value of each customer relationship.

Key Takeaways on Net Dollar Retention

Net dollar retention shows whether your existing customers are fueling growth or holding you back. A strong NDR means expansions outweigh churn, driving efficient, sustainable revenue.

If you want to sharpen your ability to analyze SaaS performance, start by mastering NDR alongside gross revenue retention. These metrics are core to explaining customer value and long-term business health.

Additional Resources

Annual Recurring Revenue (ARR)

Customer Renewal Rate

SaaS Quick Ratio

17 KPIs for Effective SaaS Valuation

See all Valuation resources