Net Dollar Retention
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Net Dollar Retention
What is Net Dollar Retention(NDR) in Finance?
Net Dollar Retention (NDR) is a financial KPI that reflects how much recurring revenue a company generates from its existing customers during a certain period, taking into account churn, downgrades, and expansion revenue.
NDR is frequently used by SaaS and subscription-based companies to assess customer retention and revenue growth. This KPI helps us answer one simple question: Are our existing customers contributing more or less to our revenue?
How is Net Dollar Retention Calculated?
The NDR formula is:
| NDR = (Beginning Revenue − Churn − Downgrades + Expansion Revenue) ÷ Beginning Revenue × 100 |
Here is an example: Let us take a case where a business begins the month with $100,000 worth of recurring revenue from the current customer base, then experiences a loss of $10,000 due to churn and downgrades and a gain of $20,000 due to upgrades and add-ons.
NDR = ($100,000 – $10,000 + $20,000) / $100,000 x 100 = 110%
The NDR of the business is therefore 110%, which means that the current customer base contributed 10%.
Why is NDR Important in Finance?
The reason why NDR is a vital financial and performance measure is that it indicates whether the business is capable of increasing its revenue without finding more customers than it currently has. This metric is especially valuable for companies that provide subscription services since it allows management and shareholders to assess the quality of revenue.
A company with high NDR might have the opportunity to boost revenue without finding new clients.
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