Net Dollar Retention – Definition

Cite this article as:"Net Dollar Retention – Definition," in The Business Professor, updated December 8, 2019, last accessed October 19, 2020, https://thebusinessprofessor.com/lesson/net-dollar-retention-definition/.

Back to: ACCOUNTING, TAX, & REPORTING

Net Dollar Retention – Definition

Net dollar retention (or net revenue retention) is a metric used to measure a company’s year-over-year performance. It compares the amount of revenue that a company brings in a given year from the previous year’s existing clients. It does not factor in revenue from clients acquired in the present year.

Net Dollar Retention = Revenue from Last Year’ Existing Clients

A Little More on Net Revenue Retention

This metric is commonly used by Software-as-a-Service (SAAS) companies that require high levels of customer retention.

In a SAAS company with a paid subscription model, Net Dollar Retention would include:

Revenue Renewal Amount plus Revenue from Upselling or Cross-selling to existing customers minus Churned Revenue (revenue lost when existing customers do not come back).

High net dollar retention is a strong sign for a growth-based company, as achieving a high percentage growth year over year is difficult when the level of churn (lost customers) is high. Of course, upselling or cross-selling to existing customers alleviates the impact of this negative metric.

Was this article helpful?