Its an old piece of wisdom but still valid today.
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 youre unable to bind your user to your product, it is completely useless.
Well, its not uncommon that a companys MRR increases while their NDR deteriorates.
In other words, the company is bleeding money.
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With that in mind, upgrades or downgrades and churns must be considered while judging a companys performance.
What is Net Dollar Retention?
NDR is a metric expressed as a percentage.
Why is NDR so important?
This scenario happens when your marketing department is on fire.
Lets say your company starts this month with 100,000 in MRR.
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?
Lets dig a bit deeper into what this means before we address the essentials of NDR.
By upgrading a standard subscription to a premium subscription, for example.
Or when your marketing department does a bang-up job.
In this case, the expansion revenue would be 40 or the net increase resulting from the upgrade.
Sometimes you lose clients, this decreases your MRR.
A downgrade would be a user moving from a 50 basic premium subscription to a 10 basic subscription.
10-50 = (40)
Churn
Id define churn as adisaster.
Or, more mildly put, as losing users.
An example of churn is a user leaving the platform from a 50 subscription.
The churn would be 50, the net loss resulting from the user leaving your platform.
But with that out of the way, lets get to the meat of this article.
It is expressed as a percentage and calculated using the following equation.
You are losing users, or theyre spending less on your product.
The role that your product plays in their life is not significant enough.
They can do without you.
Or, with less of you.
Both are a little painful.
Its like being dumped.
If this analogy seems a little far fetched, but I tend to disagree.
People dont leave something that they really love.
Or, in this case, a product they really love.
Maybe, just maybe, youre not loveable enough, and it is time to invest in the relationship.
How to improve the NDR?
If your NDR is bad, dont worry.
Design helps you get your product from liked to loved.What does this mean?
So calculate your NDR and find the best way to get it to where you want it to be.
