About Net Dollar Retention or NDR.

For years, SaaS entrepreneurs (and investors) have focused on MRR, monthly recurring revenue. This will change in 2021. NDR is much more interesting and valuable. Think back to one of your first economics lessons. Nothing special, just in high school. We bet you’ve been told somewhere in the first year that it’s much cheaper to keep a customer than having to hunt for new customers all the time. It is an old piece of wisdom, but still true today. It may even be more true than ever, especially for SaaS entrepreneurs. You probably have a very good idea about the cost of generating new leads. Marketing can become very fast, very expensive. And if you are not able to really connect your user to your product, it is completely useless.

Most people assess the performance of a SaaS company on its MRR while assessing a company on its NDR can be much more valuable. Why is this the case? Well, it’s not uncommon for a company’s MRR to increase while the company’s NDR deteriorates. In other words, you lose money.

A Net Dollar Retention below 100% means that the churn and downgrades were greater than the growth you achieved with your existing customers. You lose users or they spend less on your product. The role your product plays in their lives is not significant enough.

NDR will become one of the most important metrics of 2021. The favorite metric of investors, and therefore yours as well. Smart SaaS entrepreneurs shift their focus from a conversion funnel to a retention funnel. In many cases, this is a matter of prioritizing “Human-Centered Design”.