Net Dollar Retention (NDR) vs. Net Revenue Retention (NRR)
As a B2B SaaS startup, you tend to use various KPIs to rightfully measure your company’s success. Two important (yet overlooked) metrics are Net Dollar Retention (NDR) and Net Revenue Retention (NRR).
While both these terms are used interchangeably, there are slight differences between the two that are crucial to note.
What Does Net Dollar Retention Mean?
Net Dollar Retention (NDR) is a metric that measures the dollar amount of revenue that a company retains from its existing customers over a given period. This metric takes into account any revenue lost from customers who churned, and any additional revenue gained from upsells or cross-sells.
In other words, NDR measures the effectiveness of a company’s efforts in retaining and growing its existing customer base. It’s a critical metric to track because it provides insights into the health of a company’s current buyers.
A high NDR indicates that a company’s existing customers are spending more money over time, which is a sign of customer loyalty and satisfaction. On the other hand, a low NDR could indicate that a company is struggling to retain its customers or is not providing enough value to them.
Key Difference between NDR and NRR
While NDR and NRR are similar metrics, there are some key differences to be aware of.
The NDR calculates the average change in the percentage of earnings in the first year of a customer’s tenure.
On the other hand, the NRR metric measures the proportion of revenue retained from all customers over a consistent 12-month period.
The main difference here is that the NRR extracts the effect of large customers on your overall expansion since their impact has the biggest role compared to other existing customers.
Both of these metrics tell a lot about the health of your SaaS company, so make sure you know which one to use and at what time!
How To Improve NDR & NRR
The simplest way to improve NDR and NRR is to either improve expansion revenue or reduce churn rate. Then again, these are simple in theory but difficult in practice!
Here are some actionable tips to improve your company’s NDR:
- Improve expansion revenue by promoting upsells, cross-sells, and other upgrades
- Use in-app messaging strategies based on user behavior to drive more expansion
- Use NPS surveys to get feedback from unsatisfied users before they churn
- Offer an in-app help center that users can use to solve common problems without contacting customer support.
Overall, try to provide value to your existing customers and improve your customer success strategies – it’s a foolproof way to improve customer satisfaction and loyalty. That in turn rewards you with higher revenue and growth.