Net Dollar Retention (NDR)
Net Dollar Retention measures how much revenue you keep and grow from your existing customer base, accounting for both expansion (upsells, add-ons) and contraction (downgrades, churn). It's the percentage of revenue retained from last year's customers, including growth from those same customers.
Full Explanation
The Problem It Solves
Most companies obsess over acquiring new customers, but the real profitability lever is what happens *after* the sale. NDR answers a critical question: Are your existing customers becoming more or less valuable over time? A 120% NDR means you're growing revenue from last year's customer base by 20%—even before adding a single new customer. This is the hidden engine of SaaS profitability.
How It Works in Marketing
NDR is calculated as: (Beginning ARR + Expansion Revenue - Churn Revenue) ÷ Beginning ARR × 100.
For marketing leaders, NDR reveals whether your product, customer success, and sales teams are working in harmony:
- Above 120% NDR = Customers are buying more from you (expansion is outpacing churn). Your product is sticky and valuable.
- 100-120% NDR = You're holding customers but not growing with them. Churn is minimal but upsell motion is weak.
- Below 100% NDR = Customers are leaving or downgrading faster than you can expand. Red flag.
Marketing's role: You influence NDR through product education campaigns, feature adoption programs, and cross-sell enablement. When your messaging helps customers understand the full value of your platform, expansion revenue increases.
Real-World Example
A marketing automation platform starts the year with $10M in ARR from existing customers. By year-end, $2M of those customers churned, but $3M in new expansion revenue came from upsells and add-ons. NDR = ($10M + $3M - $2M) ÷ $10M = 110%. The company grew revenue from its base without acquiring new customers.
What This Means for Tool Selection
When evaluating AI marketing tools, ask vendors for their NDR. A high NDR signals product-market fit and customer satisfaction—the same qualities you want in your tools. Tools with strong NDR tend to invest in continuous improvement rather than chasing new logos.
Why It Matters
NDR is the single best predictor of SaaS company valuation and long-term profitability. Companies with NDR above 130% command premium valuations and require far less new customer acquisition spending to hit growth targets.
For CMOs, NDR directly impacts your budget allocation:
- High NDR (120%+) = You can afford to invest more in brand and demand generation because your unit economics are strong. Expansion revenue subsidizes acquisition costs.
- Low NDR (<110%) = You're trapped on a treadmill, forced to spend heavily on new customer acquisition just to maintain growth. Your marketing budget becomes a cost center, not an investment.
- NDR improvement = A 10-point NDR increase can be worth millions in avoided acquisition spending and higher lifetime value.
NDR also influences competitive positioning. Companies with strong NDR can weather market downturns, invest in innovation, and outspend competitors on customer acquisition. It's the difference between a sustainable growth engine and a leaky bucket.
When negotiating AI tool contracts, NDR performance should factor into your decision. Vendors with strong NDR are more likely to remain solvent, continue investing in their product, and deliver ROI over a multi-year engagement.
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Related Terms
Customer Lifetime Value (CLV)
The total profit a customer generates for your business over the entire relationship, from first purchase to last. It's the financial value of keeping a customer loyal rather than constantly chasing new ones.
Churn Prediction
An AI model that identifies which customers are most likely to stop using your product or service in the near future. It analyzes patterns in customer behavior to flag at-risk accounts before they leave, giving your team time to intervene.
Net Revenue Retention (NRR)
Net Revenue Retention measures how much revenue you keep from existing customers after accounting for cancellations, downgrades, and expansion. It tells you whether your customer base is growing or shrinking in value—a critical health metric for SaaS and subscription AI tools.
Expansion Revenue
Revenue generated from existing customers by selling them additional products, features, or services beyond their original purchase. For marketing leaders, expansion revenue is often easier and faster to capture than acquiring new customers, making it a critical lever for accelerating growth.
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