{"id":3011,"date":"2021-02-12T08:00:26","date_gmt":"2021-02-12T08:00:26","guid":{"rendered":"https:\/\/thenextweb.com\/?p=1338598"},"modified":"2021-02-12T08:00:26","modified_gmt":"2021-02-12T08:00:26","slug":"why-your-saas-success-is-all-about-net-dollar-retention","status":"publish","type":"post","link":"https:\/\/www.londonchiropracter.com\/?p=3011","title":{"rendered":"Why your SaaS success is all about \u2018Net Dollar Retention\u2019"},"content":{"rendered":"\n
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If you\u2019ve ever taken a marketing 101 course, you\u2019ve learned that keeping a customer is much more profitable than acquiring new customers. It\u2019s an old piece of wisdom but still valid today. <\/span><\/p>\n

Unfortunately, many SaaS companies forget about it and concentrate their efforts on generating new leads. The costs of acquiring new customers get very high, really quick. And if you\u2019re unable to bind your user to your product, it is completely useless. <\/span><\/p>\n

Most people judge the performance of a SaaS-company on its MRR while judging a company on its NDR might give much more valuable insight. <\/span><\/p>\n

Why? Well, it\u2019s not uncommon that a company\u2019s MRR increases while their NDR deteriorates. In other words, the company is bleeding money. <\/span><\/p>\n

One could argue that NDR is much more than a number; it quantifies how your clients value or love your product and how much of an impact you\u2019re making on their lives\u2026 I\u2019d say Customer lifetime value (LTV) is one of the most critical metrics for SaaS companies. <\/span><\/p>\n

With that in mind, upgrades or downgrades and churns must be considered while judging a company\u2019s performance. <\/span><\/p>\n

What is Net Dollar Retention?<\/span><\/h2>\n

NDR is a metric expressed as a percentage. It illustrates the (change in the) amount of revenue from the current users a company can retain compared to another period with taking downgrades, upgrades, and churn into account.  <\/span><\/p>\n

NDR, or Net Dollar Retention<\/span><\/a>, is not as well known as MRR, but a very valuable (if not more valuable) metric. Especially for SaaS\u2013entrepreneurs. Why is NDR so important? Well, first and foremost for me is the fact that it\u2019s very much possible to grow your MRR while losing money. <\/span><\/p>\n

This scenario occurs when your marketing department is on fire. The acquisition of new users creates a revenue stream that exceeds the net reduction in revenue from your existing user base.  <\/span><\/p>\n

Let\u2019s say your company starts this month with \u20ac100,000 in MRR. It books \u20ac50,000 in new subscriptions, zero in expansion revenue, suffers \u20ac20,000 in downgrades, and \u20ac5,000 in churn.<\/span><\/p>\n

In this example, your MRR rose by a whopping 50%. And yes, you should bring out the champagne for that. But, your NDR is only at 75%. You lost 25% of MRR from your current userbase. Also, what was your marketing budget? How much did you spend to acquire these new users? Money is leaking from your business\u2026<\/span><\/p>\n

To understand Net Dollar Retention, you must consider expansion (by marketing), downgrades (of packages), and most of all churn, and their effect on monthly recurring revenue (MRR).<\/span><\/p>\n

Let\u2019s dig a bit deeper into what this means before we address the essentials of NDR.<\/p>\n

Increases in MRR<\/span><\/h2>\n

MRR can increase via two broad mechanisms:<\/span><\/p>\n