Net Dollar Retention (NDR)
What is net dollar retention (NDR)?
Net dollar retention (NDR), also referred to as net revenue retention (NRR), tells you about the value your customers perceive your SaaS product to have. Are they expanding to take on more products or are they contracting their usage of your product and services, whether by downgrade or churn? It is important to measure and track as it showcases the health of your recurring revenue.
NDR is based on your existing revenue base and does not include new customers. It is commonly calculated on a cohort segmentation. You can analyze the differences in renewal or downgrade behaviors by cohort for greater insight as to where to ramp up customer success initiatives or for clearer profitability metrics on cohorts choosing to downgrade.
NDR is best used in conjunction with other SaaS metrics. For example, monthly recurring revenue (MRR) does not necessarily allow you to drill into what is happening with your churn, or value erosion. NDR, on the other hand, does.
This is how you calculate NDR. You can swap annual recurring revenue (ARR) for MRR if you operate on an ARR basis.
Example of a Sage Intacct subscription renewals forecast dashboard.
Bessemer Ventures explores net dollar retention by sub-industries within the SaaS industry in their report, Scaling to $100 Million. The report reflects how it differs based on the sales strategy. Additionally, they state the NDR benchmark is to have a net dollar retention rate over 100%.