A very important but often overshadowed metric in SaaS is gross dollar retention. Gross dollar retention measures how much of your customer revenue has remained with you a year later. Formulaically, it’s beginning ARR — downgrades — churn all divided by beginning ARR. It excludes upgrades.
While 98 SaaS companies disclose net dollar retention (which includes upgrades) at the time they went public, only 21 disclose gross dollar retention. That data is presented below and as you can see, median gross dollar retention is 95%. This figure is clearly subject to bias as so few companies report it, but it is nonetheless extraordinary. A few observations:
Gross dollar retention above 86%. Of the 18 publicly traded companies that disclosed their gross dollar retention at IPO, the lowest figure was 86% which is still very good. Generally speaking, healthy SaaaS has gross dollar retention of 80%+. Obviously, the higher gross dollar retention is, the higher net dollar retention will be.
Selection bias. The fact that only 21 companies share their gross dollar retention while 98 share net dollar retention should indicate to you the data is highly subject to bias. In other words, only those companies with fantastic gross dollar retention are reporting it. Even though the median here is 95%, we continue to believe 80%+ gross dollar retention is a fine place to be so long as net dollar retention is over 100%.
Some firms prefer gross dollar retention. We do know some growth equity and venture funds that look to gross dollar retention more so than net dollar. Their view is that so long as you’re not losing customers, they can teach you how to upgrade those customers, whereas if gross dollar retention is low, that’s a much harder problem to solve (retaining customers). We happen to care far more about net dollar retention, as it takes time to figure out your ideal customer and NDR reflects that focused customer, whereas GDR doesn’t isolate the ideal customer in the data nearly as well.
Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at firstname.lastname@example.org. We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.