Why is net dollar retention important?

SaaS organizations are always on the lookout for new and better ways to stay on top of their customer's needs and still turn a profit at the end of the day. There are all kinds of software that a SaaS company could download to help with those efforts, but if they aren't sure of what to focus on, then the effort could be wasted.

Net dollar retention (NDR), or net revenue retention (NRR), is the metric we will discuss in this blog, and it might just be the most critical measure for business success that is often overlooked. Our goal with this blog is to help organizations better understand the importance of NDR/NRR and help with improving net revenue retention.

Is Net Dollar Retention the Same as Net Revenue Retention?

Before we can jump into NDR's importance, we think it is necessary to clear the air on the common confusion around this topic. As you may have noticed in the introduction, we used NDR and NRR interchangeably, and that is because these terms do indeed mean the same thing. You might even come across the term net cash retention as well, but don't worry, that also means the same thing.

The reason for the variety is due to how different countries use various types of currencies and language to discuss these matters. While net dollar retention may make perfect sense, it could become quite confusing in another country that does not use the dollar. As a heads up, we may use different terms throughout this piece.

Why is Net Dollar Retention Important?

So, why exactly is this data point so vital? The answer is twofold. NDR is essential because it helps companies measure customer retention and their ability to keep the customers engaged. This leads to an easier time delivering innovations that meet or exceed established business goals. Keeping a watchful eye on this metric allows for an organization to make more proactive decisions, rather than reactive ones that a majority of businesses are forced to make. Companies can build more efficient workflows and standards based on their NDR rate. To further drive home how vital net dollar retention is, here are two other significant takeaways.

• NDR shows how much growth you're able to generate without acquiring any new customers.

• NDR shows how satisfied your existing customers are with the value exchange you're providing, which reflects the strength and stickiness of your product and proposition.

Our team understands that managing another metric is something that sounds like a nightmare to some companies. That is why Planhat is a great source of information for finance teams to keep track of performance reporting and forecasting in real time.

What is a Good Net Dollar Retention?

Now that we know this data point is invaluable to the success of an organization (especially SaaS companies), what is a good NDR to shoot for? A good net dollar retention benchmark to aim for would be over 100%. It should be noted that this mark is generally for enterprise-level companies, while small or medium-sized organizations can aim for the 90% to 100% range.

However, generalities are there as a good starting point but might not always be the most useful. Doing some preliminary research on companies that are about the same size and in the same industry can give you an idea of where you stack up with the competition. Not every company releases NDR data, but in 2018, Crunchbase found that of the companies that share their scores, the average between the top 10 SaaS companies was 125%. Overall, from all the data they gathered, if you are below 100% (in most cases), there needs to be some change to improve, and if you are above 125%, you are doing phenomenal.

How to Improve Net Revenue Retention?

So, what can you do to improve if you are an enterprise-level company with 90% NDR or a smaller organization with 85%? There are many strategies that a company can try to implement, but it all boils down to two major concepts. Increase the good elements like expansion revenue, and decrease the negative aspects like customer churn. We know, easier said than done. Let's break this down.

Increase Expansion Revenue

• Upselling: Once you have a customer in the door, using some form of your product, half the battle of upselling is complete. The best part is that the customer can even be operating with a free version of your product. From there, account managers and sales reps can begin to explain how expansion into other services would benefit them. We know that some sales reps or teams may not value upselling as highly as others, so to drive home its importance, check out how THRIVE lowered customer churn and increased upsell rates by 24%.

• Modals: Modals are easy-yet-effective ways to generate more revenue from customers. Think of it as upselling without human interaction. In the previous point, we mentioned free or freemium users. In these cases, the customer's access or abilities within your product are limited. When they attempt to perform an action they are currently restricted from performing, a modal pop-up would appear, explaining that they need to be in a different subscription model to perform the action.

Decrease Customer Churn

• Improve Onboarding: Churn is an element of business that is bound to happen. It is unavoidable. However, in the earliest stages of acquiring a new customer, you have a chance to lower churn rates significantly. Your onboarding process should enable customers to hit the ground running with your product. You can expect them to bring up questions or issues later on, but if a customer struggles with operating your product early, they will be more likely to abandon ship. Planhat can help overhaul your onboarding process to ensure customers get the best experience out of the gate.

• Increase QBR Frequency: A quarterly business review (QBR), also known as an executive business review (EBR), is a fantastic way to gain actionable feedback from customers. While these meetings can often become everyone patting each other on the back for the success made, it should always be a place to let customers voice any problems or concerns they have with your product. Customers are less likely to leave if they know their opinions are being heard and acted upon. You do not need to act on every piece of feedback, but it is important to hear it out.

Planhat: Net Dollar Retention Demystified

Any business can have a successful month, but in order to achieve longevity, a company must cultivate the best relationship with its customer base. Planhat understands this and can provide an organization with unrivaled customer intelligence.

If you want to create a net revenue retention rate of 100% or more, contact us for a demo today to get started.