Formula: (Starting revenue + expansion - contraction - churn)/ Starting revenue
Retention can be calculated in two primary methods; Net and Gross. At Element SaaS Finance, we like to focus on Net Dollar Retention (NDR) rather than Gross Dollar Retention (GDR). GDR measures the percentage of revenue the business can retain from contract origination. NDR, however, includes the Retention from origination and the business's ability to "land and expand" its revenue.
Why do we focus on NDR?
Our team believes it to be a superior assessment of Retention because it indicates the "stickiness" of the product and the perceived value offered to clients through expansion. Our borrowers always have an NRR greater than 100%.
Lastly, research indicates that acquiring a new customer costs approximately 5x more than keeping an existing one. So, overall, we believe that a high NDR is an excellent indicator of your financial health and ability to continuing growing!
Our team of SaaS growth finance experts speaks with hundreds of founders each month. Talk to us to learn how we help fund your growth.