What is Net Dollar Retention (NDR) or Net Revenue Retention (NRR)?
Understanding NDR and NRR: Definition and Calculation
Net Dollar Retention (NDR) and Net Revenue Retention (NRR) are the same metric but are sometimes used interchangeably depending on context. Both measure how much revenue a company retains and grows from its existing customer base over a specific period, accounting for expansions (upgrades), contractions (downgrades), and churn (lost customers). The slight variation is often in naming conventions, with NDR being more common in certain industries like SaaS.
Net Dollar Retention (NDR) or Net Revenue Retention (NRR) is a metric used to measure how much revenue a company retains and grows from its existing customer base over a specific period. This metric accounts for revenue gained through expansions (upgrades or add-ons), revenue lost through contractions (downgrades), and churned customers. It is expressed as a percentage, with a rate above 100% indicating growth beyond the starting revenue from existing customers.
How to Calculate NDR/NRR:
Start with the revenue from existing customers at the beginning of the period. Add any revenue gained from expansions, subtract revenue lost from downgrades and churn, and divide the result by the starting revenue. Multiply by 100 to express the metric as a percentage.
Example:
If a company starts a quarter with $1,000,000 in revenue from existing customers, gains $200,000 from expansions, loses $50,000 from downgrades, and $30,000 from churned accounts, the calculation is as follows:some text
- Subtract the revenue lost ($50,000 + $30,000) from the total ($1,200,000).
- Divide the remaining $1,120,000 by the starting $1,000,000.
- Multiply by 100 to get an NDR/NRR of 112%.
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