What is net dollar retention?
Net dollar retention (NDR) aka Net Revenue Retention (NRR) metric measures the change in revenue caused by your existing customers.
It is a percentage that shows how your recurring revenue has grown or shrunk within a defined time period, according to upgrades, downgrades, and churn.
How to calculate net dollar retention?
To calculate net dollar retention, first add ‘starting MRR’ and ‘expansion revenue’ (upgrades, revenue from additional features, etc). Then, subtract ‘downgrades’ and ‘churn’ from this number.
Lastly, divide the figure received by ‘starting MRR’ and multiply by 100.
While calculating, keep in mind that all numbers are in dollar amounts and the final figure is a percentage.
Formula for calculating net dollar retention
Real-life example of net dollar retention
Let’s assume you run a subscription based software business and your basic plan costs $10 and premium costs $15 per month. Your MRR (monthly recurring revenue) in the start of the previous month was $1,000.
During the month, 5 of your customers upgraded to a premium plan which gives us a expansion of $75 (15 x 5), and 2 customers of the basic plan churned, which means, you lost $20 (2 x 10).
So, your NDR will be: (1000 + 75 - 20) / 1000 x 100 = 105.5%
What’s considered a good net dollar retention? (benchmark)
A good net dollar retention is of at least 100%, which means there is an increase in revenue from existing customers. If your NDR is less than 100%, it means that there is a decrease in revenue from downgrades and churn of existing customers. Anything over 120% is considered excellent.
High-performing SaaS companies have more than 120% NDR and the approximate median is 106%.
According to Crunchbase, the average NDR of companies that have successfully gone public is just under 107%.
Ways to improve your net dollar retention
- Motivate users to upgrade: In order to increase expansion revenue, you need to prompt users to upgrade by showing what they are missing out on. Read this guide on: How To Generate More Revenue With Customer Expansion Strategies
- Minimize your churn risk: An intelligent way to identify likely churn is by analyzing your NPS survey responses. If you succeed to prevent revenue loss from cancellations, your Net Dollar Retention rate will rise.
- Show that you care: In order to show your existing customers that you care about them, you need to constantly engage with them. The most efficient customer engagement channels for B2B companies is email marketing. Increased engagement with existing customers help build their loyalty towards you.
Also Read: Related Metrics
- Net Promoter Score
- Customer Churn Rate
- Customer Lifetime Value
- Customer Retention Rate
- Repeat Purchase Rate
- Customer Satisfaction Score (CSAT)
- Renewal Rate
- Customer Acquisition Cost
- First Contact Resolution Rate (FCR)
- Free Trial Conversion Rate
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
- Average Revenue Per User
- Referral Program ROI
- Upsell Rate & Cross-sell Rate
- Viral Coefficient
- Participant Share Rate
- Invitation Conversion Rate
- Product Adoption Rate
- Sessions per User