Pulse 2021 Slides: Net Dollar Retention (NDR) Benchmarks and Thoughts

This is a quick post to share the slides I presented today at the GainSight Pulse Everywhere 2021 conference in a session entitled Net Dollar Retention, Key Benchmarks at $50M, $200M, and $1B in annual recurring revenue (ARR).

In the session we discuss:

  • The answer, which is 104%.  (Median NDR which is surprisingly invariant across size.  Exception:  public company NDR median is 111%.)
  • Problems with historical installed-base valuation metrics such as churn, customer lifetime (CLT), and lifetime value (LTV), building on my SaaStr 2020 presentation, Churn is Dead, Long Live NDR.
  • The rise of NDR as the SaaS metric of choice.
  • How NDR is currently the most powerful predictor (among common alternatives) of a company’s revenue multiple (EV/R).
  • The “dollar” in net dollar retention and why global companies should look at NDR using constant currencies, not dollars converted at a spot rate.
  • How NDR should vary as a function of stage, expansion model, business model, target market, sales motion, and pricing model.
  • How usage-based (aka, consumption-based) pricing models will be as transformation to subscription SaaS as subscription SaaS was to perpetual license software.

The deck has an rich appendix with interesting information clipped from a variety of my favorite sources, including RevOps^2, Meritech Enterprise Public Comps, OpenView Expansion SaaS Benchmarks, OpenView Usage-Based Playbook, Bessemer State of the Cloud, KeyBanc SaaS Survey (PDF), SEC filings, and others.

Here are the slides, which I’ve also embedded below:

 

I’d like to thank Ray Rike at RevOps^2 for giving me early access to his upcoming FY20 B2B SaaS Benchmarks report.

If GainSight makes a video available online, I’ll add a link to it, here.  Meantime, thanks to GainSight for having me and hope you enjoy the presentation.

4 responses to “Pulse 2021 Slides: Net Dollar Retention (NDR) Benchmarks and Thoughts

  1. I watched it live at Gainsight Pulse and back here to soak it all in again! Great insights Dave; using these as a driver for my CS (and C-suite) team!

  2. Hiroko Razavi

    Hi Dave, I have a question about calculating NDR.
    Let’s say, GE is your customer and you do business with 10 divisions as your accounts in your CRM for years.Then you get the new account as the11th during a year. Is the revenue from this 11th account an expiration or a new one when you calculate this year’s NDR?

    • If you were doing some “net logo retention” i.e., looking at cohorts of “accounts” or “logos” you’d have a big question about whether GE is “one account” or each division of GE is its own account. While I personally don’t care much about net logo retention, I do care about new vs. expansion ARR and we’ll need to know what “an account” is to answer whether any given new ARR is from a new or existing account. Basically, that definitional question about what’s “an account” must be answered.

      Now for NDR all that doesn’t really matter. Why? Because it’s cohort-based and those cohorts are time periods. That is, most people, at the first order, don’t do NDR on an account basis. They do it on a time basis — that is, take all the ARR from new accounts (definition required) signed in 1Q18 (or all of 2018 if you prefer) and then watch what happens to it over time.

      If you look instead at account-based NDR, if GE is one account then that new division is expansion on the GE account. If each GE division is its own account, then it’s new logo ARR.

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