📚 Stock Market Glossary
Clear, beginner-friendly explanations, real-world analogies, and visual formulas for key stock market terminology.
NDR (Net Dollar Retention Rate)
Valuation💡 Key Takeaway: A core SaaS/AI metric measuring the percentage of recurring revenue retained from existing customers over a given period, factoring in upgrades, downgrades, and churn.
Restaurant Analogy: If regular diners who spent $100 last year love the menu so much that they order appetizers and wine to spend $125 this year, the business enjoys a 125% NDR without needing new patrons.
😎 10-Second Show-off Pro Tip for Friends!
Show-off Tip: 'Never judge enterprise software or AI plays solely on headline revenue growth. Check their Net Dollar Retention (NDR)—if it stays above 120%, the organic land-and-expand flywheel is thriving!'
📖 Beginner-Friendly Explanation
STEP 1
Core Concept & Meaning
Net Dollar Retention (NDR) measures the percentage of recurring revenue retained from an existing cohort of customers over a designated timeframe (typically 12 months). It isolates the organic expansion of the existing customer base by combining expansions and upgrades while deducting downgrades and contract cancellations (churn).
STEP 2
Why It Matters & Key Mechanics
- NDR Above 100% (e.g., 125%): The company achieves 25% revenue growth purely from its existing client base without spending a single dollar on new customer acquisition.
- NDR Below 100% (e.g., 85%): The business suffers from a 'leaky bucket' syndrome where churn outweighs product expansion, forcing high customer acquisition costs (CAC).
STEP 3
Practical Investment Tips & Pitfalls
Top-tier enterprise B2B SaaS and AI infrastructure platforms consistently demonstrate NDR figures exceeding 120% to 130%, signaling immense product stickiness and pricing power.
📊 Net Dollar Retention (NDR) Calculation
NDR (%) = [(Starting Cohort ARR + Expansion - Contraction - Churn) / Starting Cohort ARR] * 100
• Starting ARR: $100M + Expansion: $30M - Contraction: $5M - Churn: $5M = Ending $120M (NDR: 120%)
• An NDR above 100% represents automatic compounding expansion.
⚖️ Key Comparison at a Glance
| Metric | NDR 125% (Top-Tier SaaS/AI) | NDR 90% (Churning Legacy Tech) |
|---|---|---|
| Cohort Revenue Trajectory | Expands by 25% via seat upgrades & API consumption | Shrinks by 10% due to contract cancellations |
| New Customer Reliance | Low (Organic growth without high ad spend) | Critically High (Needs constant new logos just to stay flat) |
| CAC Payback Efficiency | Highly accretive operating margins | Severe margin compression from defensive marketing spend |
| Valuation Multiple | Commanding premium EV/Sales multiples | Heavily discounted valuation multiples |
📌 Practical Market & Real-World Example
Despite a challenging macroeconomic environment, an enterprise AI platform rallied as its NDR reached 132%, driven by heavy data consumption across existing corporate accounts.