Sammy is the Managing Director and Cofounder of Blossom Street Ventures. Connect on LinkedIn or email him directly at sammy@blossomstreetventures.comNet dollar retention is the most important measure in SaaS. Formulaically, it’s ARR + upgrades — downgrades — churn all divided by beginning ARR. A healthy SaaS business has net dollar retention over 100% because upgrades in the customer base are outpacing churn and downgrades. There are 59 SaaS companies which disclosed their net dollar retention at IPO. The data is below and shows on median, the net dollar retention was 111% while the top performers are well above 120% (top 5 averaged 151%).
Focus on the customers that matter. You shouldnt care so much about losing customers that weren’t a good fit (every SaaS company is guilty of signing up customers they shouldn’t have), whereas you should obsess over customers you lost that are a good fit. So long as your target customer base is upgrading more than they’re downgrading and churning, you’ve got a great SaaS business. Spend less time worrying about customers you lose that probably should never have signed up.
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