Want to prove value and reassure your stakeholders that your product plans are on course?
Measuring revenue alone won’t cut it. SaaS companies depend on recurring revenue models to survive and thrive. Now more than ever, you need to nail down net dollar retention (NDR) if you want to push the company forward.
What most product leaders and managers don’t realize is there’s a secret formula to boosting net dollar retention—one that uses retention and analytics to propel NDR.
What is NDR?
Net dollar retention (NDR) measures how much revenue growth or lost customers your company has experienced among your ongoing pool of customers. It examines your existing customers and considers both additional income and upgrades as well as customer churn and downgrades.
What is the net dollar retention formula?
Wondering how to find your NDR? Here’s a boiled-down formula for net dollar retention:
(Period Measured Revenue ➕ Upgrades/Expansions/Cross-sells ➖ Downsells/Churn)
➗ Period Measured Revenue
Then, multiply the answer by 100 to get your NDR percentage.
You can find net dollar retention by using a formula with specific components. To discover it, you begin by pinpointing the period of revenue you want to measure. For instance, it can be Q1 or only a month.
Then start with the amount of revenue that has come in from the current customers you want to target. Perhaps it’s the current segment of enterprise accounts. Maybe it’s all low-touch or tech-touch accounts. In all cases, the key phrase is “current customers.”
See why retention is so important?
How do you calculate your NDR?
Here’s an example to show you how to calculate your NDR:
1. Add your customer totals.
Let’s say your current customer segment is producing $100,000. Next, you’ll want to add revenue from upgrades, expansions, and cross-sells. Let’s pretend it’s $50,000, so your total is $150,000.
2. Subtract downgrades and churn.
To calculate NDR, you must also include revenue lost. So, subtract downgrades and churn. For this example, let’s say it was $25,000. That leaves you with $125,000.
3. Divide the difference by your starting revenue.
Next, divide your total from the starting revenue amount, $100K, which should give you 0.125.
4. Calculate your NDR percentage.
To find the NDR percentage, take the amount after dividing your total from your starting revenue amount and multiply it by 100. In this example, the NDR percentage is 125%, which is a significant number!
This example shows that even though you may have downsells and churn in your portfolio, other parts can increase and offset your customer base’s losses. Again, retention is your company’s beating heart.
How do analytics paint a clearer picture of NDR?
Preserving and lifting revenue is rooted in your ability to measure revenue. But just measuring NDR isn’t enough. To experience lasting product-led growth, you need deep in-product analytics that are fed by your product.
Enter Gainsight PX.
Gainsight’s PX sheds light on the user’s experience through both high-level metrics and user deep-dives. Here’s how you can use this shift to a retention mindset in tandem with PX to drive NDR higher:
Access clear visuals.
With Gainsight PX, you can visualize retention analytics and funnel analytics. Through varied segmentation model analysis, you can guide customers to their identified value. You can also see which areas of their product users are struggling with. By identifying and wiping out high-friction points from your product, you can increase adoption and boost retention.
Use engagements to increase adoption.
If you identify sluggish adoption, you can also encourage usage with in-app messaging, walk-throughs, guides, and personalized resource centers. Additionally, you gain visibility into segments and see which features are most successful. And you can anecdotally understand if that feature’s success can translate to other customers or segments.
Use adoption analytics to lift NDR.
Path analytics can also make it easier to increase NDR. PX Path Analyzer shows you how users interact with your most high-value features, so you can simplify their path. For instance, through analysis, you can reduce feature access from three clicks to one click, producing efficiency and ease. Simply put, the more seamless your user’s experience is, the higher retention will be.
Become an NDR and retention guru.
For product leaders and managers, retention has to be hands-on. You can’t just set it and forget it. It takes effort and expertise to promote growth. Ready to become an NDR, retention, and product-growth pro? Read our free guide, “Mastering Product Experience in SaaS,” to up your product-growth game now.