I just finished delivering my presentation at SaaStr Annual 2020, dubbed Churn Is Dead, Long Live Net Dollar Retention. The presentation is about understanding SaaS businesses: how to think about them, how to value them, how to use unit economics like CAC and churn to measure them, all with a particular focus on measuring the health of the annuity portion of a SaaS business, the installed base.
While the session is title is perhaps dramatized, if churn isn’t dead I think it’s at least wounded because there are too many ways to calculate it — and the downstream metrics based on it. That, in turn, lends itself to gaming. As I said in the presentation: “there’s a reason PE firms recalculate all your metrics!”
While I generally think public company SaaS metrics are inferior to private company ones, I think the public company way of measuring churn/retention — i.e., net dollar retention (NDR) rate — is superior to LTV/CAC and similar metrics, and thus that private companies should start tracking NDR, too.
If NDR is going to be measured, it can be managed and I suggest both a good and a bad way to think about that. I wrap up with a quick introduction to RPO (remaining performance obligation), another public company SaaS metric that I believe should and will catch on with private SaaS companies.