NDR vs Rule of 40
NDR (Net Dollar Retention) and Rule of 40 (Rule of 40) both come up in business conversations and get confused. Here's the plain-English difference, side by side, so you can use each one with confidence.
The key difference: NDR refers to net dollar retention, while Rule of 40 refers to rule of 40 — they describe different things even when they show up in the same sentence.
NDR — Net Dollar Retention
Revenue retained from existing customers including upsells and downgrades, net of churn. NDR above 100% means the install base is growing on its own — the single best leading indicator of a healthy SaaS business.
Rule of 40 — Rule of 40
Growth rate plus profit margin should sum to at least 40 for a healthy SaaS business. It forces the trade-off between growth and profitability into a single board-ready number.
When to use NDR
Reach for "NDR" when the conversation is specifically about net dollar retention. Revenue retained from existing customers including upsells and downgrades, net of churn. NDR above 100% means the install base is growing on its own — the single best leading indicator of a healthy SaaS business.
When to use Rule of 40
Reach for "Rule of 40" when the conversation is specifically about rule of 40. Growth rate plus profit margin should sum to at least 40 for a healthy SaaS business. It forces the trade-off between growth and profitability into a single board-ready number.
FAQs
What is the difference between NDR and Rule of 40?
NDR stands for Net Dollar Retention — Revenue retained from existing customers including upsells and downgrades, net of churn. NDR above 100% means the install base is growing on its own — the single best leading indicator of a healthy SaaS business. Rule of 40 stands for Rule of 40 — Growth rate plus profit margin should sum to at least 40 for a healthy SaaS business. It forces the trade-off between growth and profitability into a single board-ready number.
Are NDR and Rule of 40 the same thing?
No. They're often used in the same conversation because they're related, but they describe different concepts. NDR = Net Dollar Retention. Rule of 40 = Rule of 40.
When should I use NDR vs Rule of 40?
Use NDR when you're specifically referring to net dollar retention. Use Rule of 40 when the topic is rule of 40.