👋 Hi, it’s CJ Gustafson and welcome to Mostly Metrics, my weekly newsletter where I unpack how the world’s best CFOs and business experts use metrics to make better decisions.
How to Build a Net Dollar Retention Bridge
1. The Day I Learned the Hard Way
“Our NDR improved from 120% to 135% this quarter.”
I stood like a proud peacock in the boardroom, chest puffed, expecting applause for that 15-point bump in the good stuff.
“Where is it coming from?”
The question hit me like a dodgeball to the face. My confidence faltered.
“Um, well, our customers are buying more...” I stammered.
“Buying more licenses? Or buying more products?”
The distinction was lost on me then, but it’s not now. That was the day I realized the importance of deconstructing net dollar retention (NDR) into its core components—and visualizing the changes. Without this breakdown, you risk missing massive issues or riding trends you don’t actually control.
2. Why You Need an NDR Bridge
An NDR bridge isn’t just a pretty chart—it’s your way of answering questions like:
Are we expanding through licenses (headcount growth) or deeper product adoption?
Is one whale account hiding churn from a dozen smaller customers?
Could an astronomical NDR be masking missed upsell opportunities?
3. Build Your NDR Bridge
Here’s how to visualize the journey from starting ARR to ending ARR (with a template you can steal):
Template to build this included below
4. Start with Clean Data
Avoid the “NDR Rope-a-Dope”—a rookie mistake where early expansion revenue from new customers sneaks into your numbers, inflating the outcome.
Here’s your playbook:
Export customer ARR data from your CRM.
Filter to include only customers who were active at the start of the measurement period.
Example: If measuring Jan-Dec, exclude customers who joined after Jan 1.
I can’t stress this enough: You aren’t counting ALL expansions. Only those from accounts that existed before a certain date
Create columns for:
Expansion (increased usage/licenses)
Churn (contracts that ended)
Downsells (reduced spending)
Net ARR Change
Public Service Announcement:
You should never have net new ARR in your net dollar retention number.
People often mix up Net Dollar Retention Bridges with Total ARR Bridges.
The big difference is the presence (or absence) of net new ARR.
New logo revenue that has entered your base during the period should not be included in the NDR Bridge.
5. Building the Bridge
Begin with Starting ARR
Revenue from the start of the measurement period. This is your baseline.
Add Expansion Revenue from New Licenses (or more usage)
Upsells: more seats ***or can be used for more usage*** if you are not a pure subscription based model.
Add Expansion Revenue from New Products
Upsells: more seats or usage from new products
Subtract Churn Revenue
Lost customers
Subtract Downsell Revenue
Reduced commitments.
Arrive at Ending ARR
Your NDR result: starting ARR ± net changes.
5. Understand the Levers
Each step tells a story:
Expansion: Is this growth from selling more seats (macro tailwinds), more usage (existing product adoption), or adding more products (strategic upselling)?
There are a TON of companies who saw a massive uptick in NDR in 2021 when hiring was RIPPING
But when companies stopped adding employees, and actually began laying them off, that NDR bump became a mirage
Hiring is a component of NDR you can lean into, but know you don’t control the end state
“I once sold a company that wasn’t out of stealth yet 275 licenses in a 3 year ramping deal. They were worried it wasn’t enough. They were prepping for an IPO!”
-Confession of an Anonymous Sales VP who sold a TON of licenses during COVID
Churn: Who’s leaving, and why? Analyze cohorts to isolate patterns (e.g., SMBs vs. enterprise accounts).
To go deeper: is it product churn (didn’t have the features we wanted), onboarding churn (they never adopted the tool), or relationship churn (we didn’t check in enough, or our champion left)
Downsells: Temporary belt-tightening or dissatisfaction brewing under the surface?
Have you hit a saturation point where customers really like you but can’t spend more than a max of [$x] dollars across your total suite of products?
Companies will eventually get to a point where they cannibalize themselves - even if you love DataDog, there’s a point where you have six products and can’t afford to pay for eight
6. Find the Story in the Numbers
Let’s circle back to that boardroom moment:
If NDR is high, ask:
Are macro trends (like hiring sprees) doing the heavy lifting, masking deeper churn issues?
If they are, that’s OK. Call it out now so you aren’t penalized for something you can’t directly control later.
If NDR is low, ask:
Are we failing to cross-sell or expand into new departments?
For any NDR, analyze:
Which customers are driving growth? If one big account skews the numbers, there’s risk.
When you’ve got your NDR bridge, you’re not just presenting numbers—you’re telling a story. Here’s how you might frame it:
High NDR Example:
“Our NDR is at 135%, driven by license expansions from headcount growth. However, churn in smaller accounts signals we need a better onboarding strategy for SMBs.”
Low NDR Example:
“Our NDR is at 105%, with limited product expansion. This highlights the need for cross-sell campaigns, especially within enterprise clients.”
Thanks for attending my Ted Talk on NDR Bridges.
Remember to tell a story with the numbers. Each component of NDR represents a lever within your business, which should link back to actionable outcomes across different business units. If you don’t like the output, you have to figure out a way to change it.
