One SaaS metric we monitor closely is net dollar retention. It measures what percent of revenue you retained from the prior year after accounting for upgrades, downgrades, and churn. Formulaically it’s beginning of period revenue + upgrades – downgrades – churn all divided by beginning of period revenue. If that formula yields a number greater than 100%, then growth from your existing customer base more than offset any losses from that customer base.Similarly, net retention below 100% means churn and downgrades were greater than any growth you enjoyed from the expansion of existing customers. If that’s the case, you need to take action with Customer Success and Customer Support to try and reverse the trend. Generally, we find it’s not a product issue, but rather a customer success issue and/or onboarding issue. Even though software is supposed to be easy, it’s not touchless and the customer will expect responsive and thorough customer service. Likewise, if you don’t onboard the customer properly, we’ve found that you’re almost guaranteed to lose them.So what’s a good level of net retention? We looked at publicly traded SaaS companies at the time of IPO, but also in years prior when they were Series B and Series C companies. Unfortunately not every SaaS company discloses this information - we know of 40 companies that shared the data including Crowstrike and Fastly, the most recent SaaS companies to go public.The table below is organized so you can see the net retention of each company when they filed their S1 (an S1 is a prospectus that precedes the IPO) and in the years prior when available. In summary, on median the net retention was 109%, 109%, and 106% in the years leading up to the IPO. Note that the top 5, which includes names like Box, Crowdstrike, and PagerDuty, were much stronger showing average net retention of 139%. The top 10 were 131% and the top 20 were 122%.
In summary, net retention is a critical figure: if you’re at 109% you’re in line with the median, if you’re below 100%, figure out what’s happening, and if you’re ~120%+, you’re in great company. Visit us at blossomstreetventures.com. Reach out to
Enjoyed this post?
Share it using the links below.