Net Dollar Retention (NDR)

What is Net Dollar Retention?

Net Dollar Retention (NDR) measures the percentage change in recurring revenue from your existing customer base over a specific period. It accounts for upgrades, downgrades, and churned customers, but excludes revenue from new customer acquisition.

A company with 120% NDR generated 20% more revenue from last year's customers compared to what those same customers paid twelve months ago. An NDR below 100% indicates your existing customer base is shrinking in value.

NDR is also called Net Revenue Retention (NRR) or Dollar-Based Net Retention.

How to Calculate NDR

The formula captures all revenue movements within an existing customer cohort:

NDR = (Starting ARR + Expansion - Contraction - Churn) / Starting ARR × 100

Example calculation:

Starting with €100,000 in monthly recurring revenue from existing customers:

• Expansion revenue (upgrades, add-ons): €18,000

• Contraction revenue (downgrades): €5,000

• Churned revenue (cancellations): €8,000

NDR = (€100,000 + €18,000 - €5,000 - €8,000) / €100,000 × 100
NDR = €105,000 / €100,000 = 105

Your existing customers now generate 5% more revenue than they did at the start of the measurement period.

Why NDR Matters

NDR reveals whether your business model creates compounding revenue growth from the customers you've already acquired. High NDR means you can grow revenue even during periods of slower new customer acquisition.

For finance teams, NDR provides insight into revenue predictability. For RevOps, it indicates whether your customer success, product, and pricing strategies align with customer growth patterns.

Investors view NDR as a signal of product-market fit and pricing efficiency. A company expanding revenue within its existing base demonstrates that customers find increasing value over time.

What Drives NDR

Several factors influence whether NDR grows above or falls below 100%:

Expansion revenue comes from:

• Customers upgrading to higher-tier plans

• Adding more users or seats

• Increased usage in consumption-based pricing

• Cross-selling additional products or features

• Annual price increases

Contraction and churn occur when:

• Customers downgrade to cheaper plans

• Usage decreases in consumption models

• Teams reduce seat count

• Customers cancel entirely

• Failed payment processing (involuntary churn)

Implementation Considerations

Tracking NDR requires accurate revenue attribution by customer cohort. Your billing system needs to distinguish between:

• Revenue from existing customers (included in NDR)

• Revenue from new customers (excluded from NDR)

• Timing of upgrades, downgrades, and cancellations

Most companies calculate NDR monthly or quarterly using cohort analysis. A cohort includes all customers active at the start of the measurement period. Track what happens to that cohort's revenue over the following 12 months.

Modern billing platforms like Meteroid provide built-in NDR tracking across customer segments, making it easier to identify which cohorts drive expansion and which show contraction patterns.

Common Challenges

Defining the cohort boundary: Determine whether to include customers who signed up mid-period or only those active on day one. Most companies use a "start of period" snapshot for consistency.

Reactivation accounting: When a churned customer returns, decide whether to treat them as expansion revenue (if within the measurement period) or as a new customer (if outside it).

Segmentation complexity: NDR varies significantly across customer segments. Enterprise customers often expand while SMB customers may churn at higher rates. Calculate NDR separately for meaningful segments rather than blending all customers together.

Attribution timing: Usage-based billing creates attribution complexity when usage fluctuates. Decide whether to measure based on invoiced revenue, recognized revenue, or committed contract values.

Involuntary churn impact: Failed payments can artificially depress NDR. Some companies separate voluntary churn (customer decision) from involuntary churn (payment processing failures) to understand true retention dynamics.

When to Focus on NDR

NDR becomes a critical metric when:

You have a recurring revenue model. NDR only applies to subscription or usage-based businesses where customers pay over time.

Your customer base is large enough for statistical significance. With fewer than 50 customers, individual behaviors create too much noise. Focus on absolute revenue retention first.

You've achieved product-market fit. Early-stage companies should prioritize finding customers who get value. Once retention stabilizes, NDR optimization becomes more valuable than pure customer acquisition.

Your pricing model supports expansion. Flat-rate pricing with no upgrade paths limits NDR potential. Usage-based, seat-based, or tiered pricing creates natural expansion opportunities.

Customer success is operationalized. Improving NDR requires proactive engagement with customers to drive adoption and identify expansion opportunities.

Companies with low customer lifetime value or transactional business models should focus on other metrics. NDR works best for businesses where customer relationships deepen over time.