Understanding SaaS Net Dollar Retention
Episode 48
Hello friends, welcome to Episode 48 of Good Buy. Today’s theme is:
The SaaS net dollar retention - what it is, why is it important, and how to use it - all in less than 250 words
Let’s dive in..
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Friends,
Net Dollar retention is the percentage increase or retention in ARR/MRR over a particular time period.
NDR is important because it shows:
(a) how much additional growth a company acquires from its existing customers
(b) how engaged are users with your product
(c) how much recurring value are your users getting from the product over that time period
The NDR formula is:
(starting ARR + expansion ARR - contraction ARR - churned ARR) / (starting ARR) * 100
The median NDR is at 109%. Anything over 100% is good & anything above 120% is incredible
Some levers to move to optimize your NDR:
Customer success - keep your customer engaged with your company and invest in good CS
Value add - Provide recurring value & show the value other users are getting. You can leverage email marketing as a channel here
Study user patterns - Gather user sentiment about your product using metrics like NPS, feedback scores etc
User experience - User experience is key to ensuring high engagement rates. Use data & analytics to track key behavior and optimize for engagement & value delivery in-app
Upsells - Optimize to increase your lower paying users to higher-paying tiers. You wanna look at CAC : Expansion ARR ratio here. If you’re using PLG efforts, then in-app PLG upsells is something worth exploring
That’s all for today. Hope you found this post useful. More tomorrow!
Cheers,
Shaunak
Download this essay to read on the go if that’s your jam
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