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Net Dollar Retention (NDR): A Founder’s Guide to Measuring and Maximizing Growth

Writer's picture: Charlie CuddyCharlie Cuddy

When you think about growth, the first thing that likely comes to mind is acquiring new customers. While that’s essential, there’s another metric that’s just as important—arguably even more so—for evaluating the health and potential of your business: Net Dollar Retention (NDR).

A colorful circular infographic visually representing Net Dollar Retention (NDR) with sections illustrating churn, upsells, renewals, and growth metrics.
NDR is the ultimate metric for understanding how your existing customers drive sustainable growth through retention and expansion.

NDR doesn’t just tell you how well you’re holding on to customers; it shows whether those customers are spending more or less with you over time. For investors, NDR is a powerful signal. A high NDR means your customers find increasing value in your product, making your growth not only sustainable but also efficient. For founders, it’s an essential metric to understand and optimize—especially if you’re running a SaaS or subscription-based business.


Companies like Snowflake and Slack have built their success on stellar NDR, with percentages exceeding 150%. But for many founders, NDR remains an underused tool. Let’s break down what it is, how to measure it, and, most importantly, how to improve it.



What is Net Dollar Retention (NDR)?

Simply put, Net Dollar Retention measures how much revenue you’re keeping from your existing customers over a given period, factoring in not only churn but also upgrades and downgrades. It’s the ultimate indicator of customer health and the ability of your product to grow within your customer base.


Here’s the formula:

NDR (%) = ((Starting Revenue + Expansion Revenue - Contraction Revenue - Churned Revenue) ÷ Starting Revenue) × 100

To make this clearer, let’s walk through an example:

  • Starting Revenue: $100,000

  • Expansion Revenue: $20,000 (revenue from upselling customers to higher tiers or add-ons).

  • Contraction Revenue: $5,000 (lost revenue from customers downgrading).

  • Churned Revenue: $10,000 (lost revenue from customers canceling).


NDR = ((100,000 + 20,000 - 5,000 - 10,000) ÷ 100,000) × 100 = 105%

In this scenario, your business grew its revenue by 5% from existing customers. A number like this shows investors that your product has staying power and that your existing customers are a growth engine.


Important Note:

NDR does not factor in new customer revenue—intentionally. This ensures that the metric isn’t skewed by your ability to acquire customers and instead reflects how well you’re growing and retaining revenue within your existing base. If your NDR is strong, it means your current customers are driving your growth, which is a powerful indicator of long-term sustainability.



What Makes a Good NDR?

The definition of a “good” NDR can vary depending on your industry and growth stage. For SaaS businesses, a world-class NDR is anything above 120%. Companies like Snowflake have achieved NDR of 150% or more, which is a key reason for their high valuations.

A high NDR signals sustainable growth by reducing reliance on costly customer acquisition and demonstrates scalability, with customers spending more over time as they trust your solution and validate product-market fit.


In general:

  • 120%+ is exceptional and signals strong expansion and retention.

  • 100%-120% is healthy and shows that your growth strategy is on track.

  • Below 100% is a warning sign. It means that despite acquiring new customers, you’re losing revenue within your existing base.


Industries also play a role. SaaS businesses tend to have higher NDR benchmarks (110%-140%) because of recurring revenue models and opportunities for upselling. Consumer subscription services, on the other hand, often range between 90%-110% because of limited upsell opportunities.



How NDR Evolves Over Time

As your business matures, your NDR will change. Early-stage startups might struggle with churn and limited upsell opportunities, while more established companies often see their NDR stabilize or even increase as they refine their customer experience.


Here’s what the progression typically looks like:

  • Years 1-2: NDR might hover below 100% as you deal with churn and figure out product-market fit.

  • Years 3-5: NDR climbs as you add features and upselling opportunities. A strong range at this stage is 100%-120%.

  • Year 5+: By now, your NDR should stabilize. If it dips, it could signal market saturation or competitive challenges.



How to Improve Your NDR

If your NDR isn’t where you want it to be, don’t panic. Improving it is all about focusing on three areas: retention, expansion, and contraction.


1. Reduce Churn

Churn is the enemy of a high NDR. To combat it:

  • Onboard Effectively: Help customers quickly see the value of your product.

  • Proactive Support: Address potential issues before customers consider leaving.

  • Feedback Loops: Talk to your customers. Use surveys and direct conversations to identify and solve pain points.


2. Increase Expansion Revenue

Expansion revenue is your best friend when it comes to boosting NDR. To maximize it:

  • Upsell Premium Features: Offer advanced functionality or higher tiers for power users.

  • Cross-Sell Add-Ons: Introduce complementary products or services.

  • Engage Power Users: Use case studies and data to encourage deeper product adoption.


3. Address Contractions

Even customers who don’t churn might downgrade. Here’s how to minimize contraction revenue:

  • Flexible Plans: Offer temporary discounts or tier adjustments to retain revenue.

  • Retention Negotiations: Work with customers to find solutions that fit their needs.



Common Pitfalls to Avoid

Improving NDR takes focus, but it’s easy to make mistakes along the way. Here are a few to watch out for:

  • Ignoring churn analysis: If you don’t understand why customers are leaving, you’ll struggle to retain them.

  • Misusing the formula: NDR should focus exclusively on your existing customer base—don’t inflate it with new revenue.

  • Over-focusing on acquisition: A strong NDR allows you to rely less on expensive customer acquisition efforts, but only if you prioritize retention and expansion.



Final Thoughts

Net Dollar Retention isn’t just a number; it’s a reflection of how much value your customers find in your product—and how much more they’re willing to spend over time. By understanding, measuring, and improving your NDR, you’re not only positioning your business for sustainable growth but also making your company more attractive to investors.

So, here’s your next step: Calculate your NDR using the formula above. Identify one area—churn reduction, expansion revenue, or contraction management—that you can tackle today. Small improvements in any of these areas can lead to meaningful growth over time.

A strong NDR doesn’t happen by accident. It’s the result of consistent focus, intentional strategies, and a relentless commitment to delivering value to your customers.


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