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Net Dollar Retention

Net Dollar Retention (NDR) tracks recurring revenue from a group of customers over time. NDR shows the net impact that expansion, contraction, and churn have on a business. When expansion is greater than the sum of contraction and churn, a business can have >100% NDR (sometimes called net negative churn), which is the gold standard for SaaS companies.

Net Dollar Retention = current ARR from customers active in a specific period ÷ ARR from the same customers in that period

There are three methods of calculating NDR:

Trailing Period: Recurring revenue from all active customers at a certain point (eg October 2023) is compared to recurring revenue from those customers 1, 3, 6, or 12 months later. 

Cohorted: Customers are grouped by cohort (sign-up period). The cohort’s original revenue is compared to recurring revenue from that cohort a fixed amount of time (eg 12 months) later.

Renewal: For customers who are up for renewal, the recurring revenue of their expiring contract is compared to the recurring revenue from their new contract. 

All three methods give unique insights: trailing period shows the most recent trend for the customer base as a whole, cohorted retention shows how a customer may behave at a certain age, and renewal retention is good guidance for customers who are coming up for renewal. No matter how you measure, what’s important to remember about NDR is that it does reflect power laws: for companies that have organic expansion baked into their product, or have a compelling up-sell motion, it’s possible for expansion from a few big customers to dwarf churn and contraction. This can boost NDR well above 100%, even if churn is non-trivial. The most successful SaaS companies all tend to have NDR > 100% by all metrics. It makes it much easier to grow a business if each year, even with no new sales, your business grows based on customer expansion.

Benchmarks: 

Good: 100%

Great: 125%

Excellent: 150%

‍Settings: Segments, Date Range, Date Aggregation, Trailing Period, Revenue Type, Cohort Retention Baseline

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Stage Conversion Rate

Stage Conversion Rate is the While Pipeline Value sums the total ARR of active opportunities in pipeline, weighted pipeline is weighted based on the current deal stage. Weighted pipeline value is a more accurate estimate of Closed Won ARR based on the current pipeline value.

How do I calculate pipeline?

Let's assume we have the following list of opportunities currently active in our sales process:

‍

Deal Name

Sales Owner

Stage

ARR

ACME Corp. - New Business
Bugs Bunny
Stage 1
$10,000
Bonner Books - Upsell
Bugs Bunny
Stage 2
$25,000
CHOAM - New Business
Daffy Duck
Stage 2
$15,000
Daedalus Research - Upsell
Daffy Duck
Stage 3
$30,000
Bugs Bunny
Electric Enterprise - New Business
Stage 3
$50,000
$20,000
Fabulous Factories - New Business
Daffy Duck
Closed Lost

‍

The total pipeline for these opportunities is $130,000. Additionally, we can also get pipeline totals for our two sales reps: Bugs Bunny ($85,000) and Daffy Duck ($45,000).

Note that Fabulous Factories - New Business is omitted from this sum, as the stage is marked as "Closed Lost".

We can summarize our pipeline by Stage to understand how much ARR is in each step of the sales process. To summarize the Pipeline ARR by Stage, we generate the following ARR table:

Stage 1 Pipeline

Stage 2 Pipeline

Stage 3 Pipeline

Total Pipeline

$10,000
$40,000
$80,000
$130,000

‍

While we have the total pipeline value here, we can apply the weightings to more accurately estimate how much of the pipeline ARR will be Closed Won.

What is probability to close?

Probability to Close is a percentage that estimates how much of the ARR that is in a particular stage of a pipeline is expected to be Closed Won. Typically, Probability to Close will be lower in earlier stages of the sales process and higher in later stages of the sales process.

If we multiply the probability to close by the Pipeline ARR, we'll get the Weighted Pipeline ARR value in each stage.

Stage 1

Stage 2

Stage 3

Pipeline ARR ($)

$10,000

$40,000
$80,000

Probability to Close (%)

25%
40%
65%
$2,500
$16,000
$52,000

Weighted Pipeline ARR ($)

Probability to Close assumptions for each stage assume that deals in different stages have a different chance of being won. Deals in Stage 1 are 25% likely to be won, while deals in Stage 2 are 40% likely to be won, and deals in Stage 3 are 65% likely to be won.

After applying the probability to close to the Pipeline ARR, we now have $2,500 in Stage 1, $16,000 in Stage 2, and $52,000 in stage 3, for a total weighted pipeline value of $70,500. This estimate is closer to the real value we expect to have in Closed Won ARR.