Formula
How to Calculate Net Dollar Retention
Net dollar retention is this year's revenue from last year's customers divided by last year's revenue from those same customers, expressed as a percentage.
Net Dollar Retention Rate
NDR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR × 100
Where
- Starting MRR
- = Monthly recurring revenue from existing customers at period start
- Expansion
- = Revenue increase from upsells, cross-sells, and price increases
- Contraction
- = Revenue decrease from downgrades
- Churn
- = Revenue lost from customers who canceled
What Is Net Dollar Retention?
Net dollar retention, also reported as net revenue retention or dollar-based net revenue retention, measures what happened to revenue from a fixed cohort of existing customers over a period, netting expansion against downgrades and churn. Above 100 percent means the cohort spent more this period than last, with no new logos counted. It is not a defined accounting measure. Each company sets its own cohort, period, and revenue base, and the Securities and Exchange Commission's 2020 MD&A guidance says the Commission would generally expect a company presenting such a metric to accompany it with a clear definition of the metric and how it is calculated.
Worked Example
Suppose a company starts a measurement year with 200 customers producing $10,000,000 of subscription revenue. Over the next twelve months, that same cohort of 200 customers generates $11,800,000: $1,500,000 of the original base churned entirely, another $700,000 downgraded, and the survivors expanded by $4,000,000 in seat and usage growth. Net dollar retention is $11,800,000 divided by $10,000,000, or 118 percent. Gross dollar retention, which ignores expansion, is ($10,000,000 minus $1,500,000 minus $700,000) divided by $10,000,000, or 78 percent. New customers signed during the year are excluded from both. All figures are hypothetical.
Why Net Dollar Retention Matters
Net dollar retention is the metric that separates a business with compounding revenue from one that has to resell its base every year. Because it excludes new logos, it isolates whether the product earns more budget over time. It is also the metric most often defined loosely, which is why growth and late-stage investors ask for the cohort definition and the gross retention figure alongside it rather than accepting the headline percentage.
Related Terms
Frequently Asked Questions
How do you calculate Net Dollar Retention?
Net Dollar Retention is calculated using the formula: NDR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR × 100. Net dollar retention is this year's revenue from last year's customers divided by last year's revenue from those same customers, expressed as a percentage.
What is a good Net Dollar Retention?
What constitutes a "good" Net Dollar Retention depends on context — the fund's stage, vintage year, and strategy. Check our benchmarks and calculators for specific ranges.