Simple net dollar retention formula for calculating NDR
The formula for net dollar retention for a set period is as follows:
Here’s an example to make NDR calculation a little clearer:
A small business starts the year with $500,000 in annual recurring revenue.
Over that year, a whole bunch of existing customers decide to upgrade their subscriptions and spend more with the company — this amounts to $100,000 more recurring revenue.
Other customers decide to downgrade, causing a reduction of $30,000 in total.
Then there are a few who decide to stop their subscriptions altogether. That comes to $10,000 in revenue churn.
Plotted into our above the net dollar retention rate formula, the equation becomes:
($500,000 + $100,000 - $30,000 - $10,000) / $500,000 x 100 = 112% NDR
That year, the business grew by 12% ($60,000) in ARR from the customer base they went into the year with. Any further growth in ARR they experienced will have been from new subscriptions.