The Growth of NDR as a measure of Enterprise SaaS performance has been saved
The Growth of NDR as a measure of Enterprise SaaS performance
Organizations with subscription pricing can take several steps to drive sustainable NDR growth
As enterprise SaaS companies focus on retention and expansion strategies, a new metric is coming into view: net dollar retention (NDR). Part one of our series on customer value explores the emerging prominence of NDR in growth and valuation, how it reflects company health, and ways organizations can scale it.
Driving sustainable, repeatable growth in enterprise SaaS
Over the past decade, enterprise SaaS companies—and those trying to showcase growing recurring revenue—have considered annual recurring revenue (ARR) as the primary metric to measure growth and health. In general, three levers drive ARR: customer acquisition, retention of existing customers, and expansion of existing customers (via cross-sell or upsell). For a long time, companies prioritized acquisition as the main driver of growth, but increasingly, companies have begun to focus on retention and expansion to sustain top-line growth and bolster the bottom line.
As the focus on retention and expansion strategies grows, companies are expanding their metrics toolkit to include a new metric favored among investors and operators alike: net dollar retention (NDR). This article discusses what NDR—also referred to as net expansion rate or dollar-based net revenue retention—indicates about a company’s health, why it is being used as an important metric by companies and investors to measure growth, and what steps organizations can take to scale NDR.
The rise of NDR as a key growth metric in enterprise SaaS
Traditionally, enterprise SaaS companies tracked metrics, such as customer acquisition cost (CAC), customer lifetime value, churn, and net promoter score (NPS) to monitor company growth and health. While these metrics are still relevant today, the shift toward retention and expansion-driven growth has pushed companies to adopt NDR as an additional—if not primary—metric.
Delivering NDR via Intergrated Customer Outcomes
Over the past few years, enterprise SaaS companies have made significant investments in helping customers realize value across their usage journey. However, these touchpoints are often infrequent and predefined, such as the initial purchase, the point of renewal, or when onboarding a new user. Today, companies are starting to infuse customer value throughout the journey and often before the customer purchases. This shift is driven by a need to avoid churn, re-earn a customer’s share of wallet, and most importantly, “delighting” the customer.
This focus—or obsession—with customer satisfaction and achieving customer outcomes has, in turn, created greater demand for customer success (CS). Several companies—some even outside traditional enterprise SaaS—have set up broad-ranging CS capabilities that span advisory, onboarding, implementation, training, certification, and support to drive customer outcomes and, as a result, NDR. However, it is only the first step in the process. Maximizing customer value—and by extension, creating opportunities to drive NDR—requires a coordinated effort across functions and teams, built on a solid foundation of data governance, process scalability, and role clarity.
Are you ready to leverage NDR and drive sustainable and repeatable growth in your organization? Contact us to explore what’s possible.