Net Dollar Retention (%) = [(End of Month Revenue – Expansion Revenue – Contraction Revenue) / Start of Month Revenue] * 100
How to Calculate Net Dollar Retention (NDR)
- Identify Starting MRR: Monthly Recurring Revenue at the start of the period.
- Calculate Expansion Revenue: Revenue gained from upsells or cross-sells during the period.
- Determine Churned Revenue: Revenue lost from downgrades or cancellations.
- Apply the NDR Formula: Use the collected metrics in the formula above.
Understanding Net Dollar Retention
Net Dollar Retention (NDR) is a crucial SaaS and subscription business metric.
It highlights revenue retention and expansion from existing customers over a given period, accounting for churn and downgrades.
Why Net Dollar Retention Matters
NDR is pivotal for understanding customer value and business growth sustainability.
High NDR indicates strong customer satisfaction and product-market fit, while improvements in NDR directly correlate with increased company valuation.
Real-world Example: NDR in Action
Consider a SaaS company that focuses on customer success initiatives to reduce churn and promote upsells.
By enhancing product offerings and customer support, the company sees a rise in NDR, reflecting improved customer loyalty and revenue growth.
Improvement Strategies to Boost Your NDR
- Enhance Customer Success: Implement proactive support and success planning.
- Upsell and Cross-sell: Develop additional value-added services or products.
- Customer Feedback Loop: Use feedback to drive product improvements.
- Retention Programs: Create loyalty and incentive programs for long-term customers.
- Pricing Flexibility: Adjust pricing strategies to encourage upgrades.
How to Calculate Net Dollar Retention in Google Sheets
- Input your Starting MRR in cell A1.
- Enter Expansion Revenue for the period in cell B1.
- Record Churned Revenue in cell C1.
- In cell D1, input the formula: =(A1 + B1 – C1) / A1 * 100.
- The result in D1 is your Net Dollar Retention rate.
Net Dollar Retention Limitations
- Doesn’t account for new customer acquisition.
- Can mask underlying issues if overall revenue is growing.
- May vary significantly with business model or market changes.
When to Apply Net Dollar Retention
NDR is most applicable for SaaS or subscription-based businesses, especially for internal assessments of customer value and product-market fit, strategic planning, and investor reporting.
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