In our last discussion, we explored the top three key metrics crucial for investor updates:
Revenue
Burn Rate
Runway
Whatβs more here?
There are two more interesting ones you should consider at some point:
#1. Net Dollar Retention (NDR)
B2B startups often discuss this metric, representing another method to calculate B2B SaaS retention in terms of dollar amount.
Net Dollar Retention measures the amount of revenue that you keep from your existing customer base and expand within your existing customer base.
Letβs take a look at an example:
A company with $10k MRR per customer in year 1 (January cohort) maintains 100% retention at $100k MRR for 10 total paying customers in year 2.
In a more realistic scenario, the company might lose 2 of the 10 customers in January of year 2. With 80% retention, the MRR in year 2 becomes $80k.
If performing well, the company might lose 2 customers but, through upselling, increase revenue from super fans now paying $20k MRR vs. $10k previously.
This results in $110k MRR in the second year, a $10k net gain, and a 110% Net Dollar Retention.
Formally, Net Dollar Retention is a key SaaS metric that focuses on measuring revenue retained from existing customers, accounting for upsells, cross-sells, and churn. It provides insights into revenue growth and expansion within the existing customer base.
Itβs calculated as:
Uh, not as easy to understand as the above example. Just check out the example! π
More importantly, a positive NDR indicates revenue expansion from existing customers, compensating for any lost revenue due to churn. A value greater than 100% suggests that upsells and expansions outweigh lost revenue from churn.
This metric reveals whether existing customers desire the product even more despite churns, showcasing the growth of the existing customer base alongside acquiring new customers.
According to YC,π€―π
Early Stage B2B SaaS companies should see Net Dollar Retention over 100%.
Thatβs tough target to meet, isnβt it?π³
But why?
βYou probably underpriced your product.
You are adding features during this period.
You should be getting better at sales and doing upsells.β
If your NDR falls below 100%, it signals potential issues such as customer churn and dissatisfaction. Then what you need to do is talking more to your customers and figure out why they are churning and find ways to improve your product.
#2. Gross Margin
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