Are you tracking Net Dollar Retention (NDR) properly? NDR, a metric used by SaaS companies to understand their organic growth, has soared to be the most popular SaaS metric of the year.
Here are 8 ways you can increase NDR in 2022:
First of all, let’s be sure you understand what we’re talking about here. Net Dollar Retention (aka NDR, Net Revenue Retention or NRR) measures the percentage of recurring revenues retained over a period of time.
How do you calculate it? It is starting revenue plus upgrades, minus downgrades and churn all divided by starting revenue. You can’t add in any recurring revenue from new clients added during the time, so keep that in mind when you are measuring this. For startups and smaller businesses this can be tricky to measure if your bookkeeper is not tracking recurring revenue by client so let 2022 be the year you upgrade your record keeping!
What is a good NDR? NDR has been tied to greater valuation multiples for SaaS businesses so you want to take note of what to aim for. The median for publicly traded companies is around 115%. For the greatest valuation multiplier you will want to exceed 125%. And if your NDR is less than 100% you have some work to do. For comparison purposes a company with an NDR of 160% will grow 10 times faster in just 5 years than a company with an NDR of 100%.
How can you increase your NDR? There are many initiatives you can undertake that will positively impact your NDR. Consider these ideas to grow your NDR in 2022.
- Make sure your pricing model is optimized to scale in direct correlation with the value you provide to clients. What do they want more of over time? Tune your pricing model into that answer.
- Create long lasting client relationships. For a strong NDR you’ll need to keep your churn at less than 1%/month. That translates to customer relationships that last 100 months so make sure your software solution and customer care programs are designed to manage the highs and lows of any long term relationship.
- Invest in onboarding. Ensure your customers understand and appreciate all the features that your solution provides so that they get the most out of your product. This will drive deeper engagement and feature adoption which can influence user growth.
- Co-create your product roadmap with clients. A key way to improve NDR is to close the gap between your clients’ desired outcomes and what the product delivers. Communicate roadmap progress to keep your users interested in what’s coming soon.
- VIP customer strategy. Identify the customers with the greatest expansion potential and give them a high touch customer service to foster growth. NDR can be heavily influenced by a few key accounts.
- Keep an eye on customer dissatisfaction. Early risk management can help avoid churn and even increase expansion. Keep an eye on user behavior and build out programs for early detection.
- Partner. When you know your market well you have the opportunity to co-create greater customer value by working with other service providers that compliment your solution. Consider who you should be working with to solve more of your clients’ problems.
- Use auto-renewals and built in pricing increases. In addition to pricing for value, you can also add in an automatic pricing increase that is triggered upon renewal. Most customers will sign up for it and for others it serves as a basis of negotiation. And an auto-renewal clause is universally acceptable in most sectors these days. Reduce churn, and increase expansion revenue with these two contract tweaks.
If you need any assistance with NDR our team at Numbercrunch can help you today!
Author: Susan Richards