Net dollar retention rate
What is net dollar retention rate (NDR)?
The net dollar retention rate (NDR or NRR) metric measures the share of the current annual recurring revenue (ARR) linked to the customer base that was active in the previous period. For B2B SaaS companies, NDR is often measured over a twelve-month period (LTM or TTM), tracking the progress of the customer base active 12 months ago. Some companies calculate NDR at shorter intervals (e.g., one quarter) depending on the average duration of contracts and the mechanism for upsell.
Why is it important to measure our net dollar retention rate (NDR)?
NDR is a key performance indicator for measuring the health, growth and long-term resilience of a business. It is especially important for SaaS B2B companies which often invest heavily in customer acquisition early on, and expect to recoup the initial spend later on by retaining and expanding accounts at a relatively lower cost.
A low NDR score is sometimes described as a “leaky bucket”, a situation where a company keeps spending capital to bring in new customers but then lets them slip (or fail to grow) when it comes time to renew.
How is net dollar retention rate calculated?
NDR is expressed as a percentage of the starting ARR. It includes the starting ARR and any expansion of the starting customer base, minus any churn or contraction.
Another way to think about NDR is shown in the chart below which visualizes the churn, contraction and expansion components of the NDR calculation.